Q3 2021 KBR Inc Earnings Call
Yes.
[music].
Good day and welcome to KBR, Inc. Third quarter 2021 earnings Conference call. This call is being recorded.
As a reminder, your lines will be in a listen only mode for the duration of the call. There will be a question and answer session. Immediately following prepared remarks, you will receive instructions at that time for opening remarks, and introductions I would like to turn the call over to Alison Vasquez President of Investor Relations. Please.
Go ahead.
Good morning, and thank you for attending Kbr's third quarter 2021 earnings call joining.
Joining me today are Stewart, Brady, President and Chief Executive Officer, and Mark Sopp, Executive Vice President and Chief Financial Officer.
And Mark will cover 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's views about future events and their potential impact on performance.
Aligned on slide two.
These matters involve risks and uncertainties that could cause 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.
Thank you Alison and thank you for joining us this morning.
I will start on slide five are some of you may be aware, we released our 2020 sustainability report last week, which highlights our progress and our continued ESG commitment.
As such I thought it would be timely to touch on some of the highlights so starting on the right hand side, if we could.
The commitment to strong leadership and governance of course table Stakes today, but I would highlight the progress we have made and diversity at the board. The high degree of independence, and I think the changing mix of capabilities to suit KBR business today.
In the bottom left we have matured our operating culture aligned with our social impact and there are some good examples listed there.
In the bottom and the middle highlight our ongoing carbon neutrality or zero 2030 commitment.
Elements of executive reward or aligned to ESG.
Oh, great examples of being a good corporate citizen, but as you know we believe.
We firmly believe that being a good corporate citizen is the floor and the ceiling.
It's really about things like the strategic growth vectors about advancing the science behind climate change.
On you Sts.
Making net zero a reality for our clients looking to operate more efficiently or to close the circular plastics Luke.
But it's about bringing commercially viable green energy to market really in some of our <unk>.
Investment in new technologies and capabilities.
The world's growing demand for real solutions around climate change.
I was doing some really pretty incredible work in these areas and I think the alignment with shareholder value.
As I believe a clear differentiator with 32% of our revenues sustainably focused with strong K gosh forecast.
I encourage you to visit our website to read the comprehensive report now.
Now on to slide six.
Quarter highlights.
It's been a fantastic quarter across all metrics financial operational and strategic.
Revenue is up 34%, yes, 34% and this was a combination of organic and acquisitive growth.
The operation Allied welcome OE W mission to assist the Dod's looking after the Afghan nationals as they came out of Afghanistan.
It's an impressive revenue growth number, especially given the impact of our exit from Commoditized services in 2020.
EBITDA is up 30%, which is again quite an increase the business has performed really well across the board delivering at or above expectations.
We hit or exceeded target margins in both our core government unsustainable tech businesses.
EPS was up significantly at 45% publicly helped by what I just covered but also with more volume in the U S that helped us tax rate also.
From a cash perspective, we maintained our discipline and focus on again outperformed the conversion rates in the quarter was 125% or so that's 110% year to date.
Cash fundamentals of our business model, not only attractive and consistent they of course give us options.
The team in London about one 6 billion of awards and options in the quarter.
A nice combination of some new work and re competes that I'll touch on shortly.
Now this figure significantly understates the magnitude of the OE W Award by almost around about a $1 billion and Mark will cover more on this later for now I'll just say the team continues to win important highly strategic projects across the growth engines that we laid out.
Our future forward Investor event earlier this year.
Fiber green ammonia digital solutions and more.
Importantly, advancing our clients' missions and sustainability objectives.
This of course provides us the continued momentum and growth towards our 2025 targets, which remain unchanged.
As we indicated last quarter, we concluded the settlement with a client on fixed us removing complexity and uncertainty and thus enhancing our capital deployment optionality.
Pursuit of the recoveries of the monies associated with the combined cycle power plant.
What affected and continues with the arbitration starting next April in 2022.
So with all of this once more raising guidance for full year 2021, and Mark will walk you through shortly.
So all up we must be and we are very pleased with the strength of the delivery on our people's commitment to the mission inspiring so a big shot a big thank you to them.
And on to slide seven.
The market outlook and government remains.
Quite similar to Q2 of course much of the discussion is on continuing resolution and of course the defense budget.
National Security priorities, however remain aligned to KBR strategic positioning so no real change there.
I suspect of the CR continues through Q4.
Some new awards will move to the right. However, the OE W.
What we're doing in our book to Bill associated with this should hold up pretty well as we await the expect to catch up in early 2022.
Outside the U S. We have just closed on Frazer Nash unexpected do well opposite increased spending and prioritize the areas in the UK and Australia.
More on Frazer Nash in a moment.
And an earnings call is incomplete without typically the hottest area, which continues to grow above the normal performed amazingly well.
We've highlighted three awards on the right I think the first to speak for themselves high end technically differentiated future focused around it and cyber and of course buying on strategy.
The third awards listed actually awards requires a special mention this is via low cap five and then again separately direct to the Navy at Quantico, and we've established multiple sites across the U S and Europe to deliver a significant and humanitarian mission to accommodate the many thousands of.
Displaced Afghans many of them children.
Our people together with our clients have done and continue to do a herculean heavy lift to establish critical infrastructure and medical facilities within a massively accelerated timeline.
To be clear KBR is not responsible for screening or security for us. This is a purely monetary and mission and one we at KBR I'm very proud of.
A huge shout out again for our people on the significant and crude from the supply chain to make all this happen.
Slightly the task order will be extended but we should have more visibility over the next few months.
So in short the market outlook across Ges with OE W. The inclusion of Fraser Nosh, Australia, and align positioning opposite budget priorities for the rest of 'twenty, one and moving into 2022 is very positive.
Now onto slide eight we will talk about outlook.
Sustainable technology.
I guess similar to the government outlook in many ways. The outlook from Q2 to Q3 for sustainable Tech is very similar but with one key positive development.
The increase in oil and particularly gas prices.
Recognize as supply demand imbalance, particularly as we move into winter.
This of course delivered increased profits to the oil and gas companies themselves, allowing them to restock capital projects and increased investment in decarbonization energy efficiency changing output mix.
Energy transition project, so very positive development, we see this shift combined with the ongoing demand for sustainable solutions as being key factors, increasing demand for our technologies and our services.
We continue to see opportunities across millenia hydrogen olefins clean refining plastics recycling.
<unk> been a big uptake in this area and in technology led to industrial solutions and our proprietary insight solution.
The three awards highlighted here.
Nearly demonstrate these themes.
I'd like to highlight the Green ammonia project, we announced a couple of weeks ago.
Australia is a cool project for a renewable energy declined that combines the client's renewable solar expertise and capabilities with our key green technology to deliver what we think will be the world's first commercial scale.
A plant.
The facility is expected to be operational in 2022, it's a real project that is moving forward with great momentum and is very very exciting.
I'll take another moment to brag on the team just a little bit.
So far in 2021, there have been three commercial scale ethylene opportunities that have come to market and you can see one of those project wins highlighted here.
But our team has bought a.
All three of those projects are.
Great result, I attribute to the customer focus.
And tenacity of our fantastic people and of course, the quality of our technology.
Okay.
That brings lower Capex investment.
Excellent and product flexibility.
<unk> profile and lower carbon footprint.
So the outlook for STS is very positive and increasing demand as expected as we move into 2022. So this takes us nicely onto slide nine.
Where you can see if all of those positive ones are resulting in strong bookings, resulting in a robust pipeline.
You can see the scale of our pipeline is indeed robust was 11 billion in the proposal negotiation phase on what's coming down the pipe.
The $1 6 billion of awards and options in the quarter.
It brings a positive outlook and strategic positioning.
All of that talk into numbers that are very aligned with our overall confidence in the company's growth strategy.
Now we promised we'd give you an update on the amount of work we have in hand and have secured to deliver on a 20, 21% to 2025 long range targets.
If you recall at our Investor Day in March 2021 book of business reflected about 55% coverage across those five years.
That revenue curve assumed CAGR of about 8%.
Today that same book of business coverage number has grown to over 60% <unk> zero percent and that excludes.
The uptick from OE W.
As we've said our strategy is to build stable predictable businesses in attractive markets with.
With a very capable business development track record.
I think the continued progress here is a great demonstration of those attributes.
So bottom line is that we stand behind our 2025 targets.
Now onto slide 10.
Last week, we announced the closing of Frazer Nash.
There is a notch if you recall as a high and advisory and consulting from delivering systems technology and systems engineering and shirts.
The addition of this talented team is an absolute step change in the evolution of <unk> business, primarily in the UK and in Australia.
It further extends our reach into technically differentiated sectors and supports our mission of delivering high margin high end technology enabled solutions and mission oriented capabilities.
Smaller the compelling clean and renewable energy suite of capabilities.
<unk> aligns with KBS commitment to ESG principles and to help our customers accomplish their sustainability objectives.
As outlined here Frazer Nash adds about $160 million of revenue and that government business in 2022 at Hy Tech margins and is expected to be approximately 10 sets accretive to adjusted EPS, We couldnt be more pleased to welcome this group into the KBR finally.
Now I'll hand over to Mark Mark.
Great. Thank you Stuart once again and I will pick up on slide 12.
Which lays out our key financial performance metrics as they usually do.
However, before I get to the numbers I, just like to make a few comments to expand on a roll.
In the operation Allies Welcome program fully GW.
As you know KBR has been involved in supporting military activities and the middle East for a very long time.
We think it's a privilege to be called upon by our nation to once again provide a good environment for.
For those who aided our allied forces during those missions.
We sort of side by side with these heroes in theater and it is our duty and honor to help them transition out of that environment under this operation.
As part of this we are tremendously proud of our KBR employees, who literally drop everything to build in a matter of just days communities hosting tens of thousands of Afghan guests.
West of the Department of Defense.
An important precursor to briefing our results here today is that while the financial impact of our role here is quite noticeable in our numbers.
Effect, the second fiddle to us.
But matters because we are there when needed to provide this critical and difficult knee.
And in fact, we're quite proud to say that KBR continues to do this sort of thing really well.
Now onto our performance in Q3.
Stuart did summarize much of this already but I'll emphasize a few points.
Q3 year over year revenue growth was 34%.
And that includes over 20% being organic with all parts of our government business, including OLED W of course driving this.
Sustainable Tech is performing at or above plan, it's still saw year over year revenue contraction as we ramp down legacy Reimbursable contracts.
Adjusted EBITDA grew 30% a terrific result.
Margins in the core government business, we're at or slightly above target.
<unk> is that low single digit as you might expect.
Margin for STS, we're once again healthy at 14%.
In corporate was on track as expected.
So together this blended to a KBR margin overall of 9%.
And Stuart I'd say bang on with our actual target.
Great result in EBITDA growth the impact of favorable jurisdictional mix for taxes, and some benefits from buybacks boosted adjusted EPS by 45% to 64 cents for the quarter.
Quality of earnings and cash conversion remained strong and as expected.
Adjusted operating cash flow was about $120 million for the quarter and Thats amounted to just under $290 million year to date.
I'll note, our consistent cash flow generation enabled significant cash contributions.
Toward the Frasier Nash acquisition versus that of course and that helps and accretion.
Stuart covered Q3 bookings and as you can see the company has build backlog and healthy measure up over 25% from Q3 of last year.
Picking up on what Stuart alluded to earlier, the $1 6 billion of bookings and options in Q3 does not reflect the full value that OE W will bring.
Because of this work is under <unk> contracts, our consistent practice is to only book funded task orders.
Which were all AWS amounted to about $500 million in Q3.
We expect another 900 million plus for Q4 associated with incremental funding.
Other times to one 4 billion uptick in our revenue guide.
Accordingly, Q4 is set up for strong bookings as well.
Under our segment results slide 13.
Our government topline growth, 154%, 33% of which was organic.
All four business units grew organically.
That's really important.
To see once again.
<unk> was a major driver contributing almost $400 million in revenues in Q3.
Our middle East contingency work was down about $100 million from last year.
Quite amazingly when you strip out middle East and OE W contingency revenue.
The readiness and Sustainment business unit grew 25%.
And it's ongoing O&M business.
25%.
Achieving that growth, while managing this massive and urgent need associated only W is really a remarkable testament to the capabilities of this team.
Defense and Intel's growth reflects Centauri and also growth across advanced systems engineering, and integration and cyber work areas.
Including some important announcements that we've made in the quarter, particularly on the cyber front because you've seen.
Science and space picked up its growth pace to 9%.
All organic.
This business unit is hitting on all cylinders, winning new work winning re competes in expanding work on existing contracts.
Ongoing growth in excellent delivery on the special forces.
Human health and performance contract is a great example.
This latter category as we've almost doubled our footprint from 2018, when we won this contract.
This is based in large part on our fantastic health professional advancing this program each and every day.
As well as the recognized need for overall wellness programs for our soldiers.
Todd Maze of science and space team has also supported several successful launches by both NASA and the well publicized commercial launches over the summer.
They also helped right the international space station twice.
Inadvertently knock off course, and foreign docking maneuvers.
Thus keeping the ISS mission safe.
EBITDA margins were on track for the core business.
As mentioned earlier <unk> is lower margin work and the dilutive margin effect from that program brings the overall GFS margin two 9% for the quarter.
We'll gladly take the growth in core earnings dollars, even with the dilution of margin percent.
Over to STS top and bottom line remained on track for Q3.
While bookings were seasonally low.
Quality of bookings were superb as this team continues to provide cleaner and safer technology to commercial and government customers all around the world.
The awards and Green ammonia plastics recycling and digitally led remote plant operations are hallmarks of creating a positive floors towards sustainability across our client base.
And this really drives our team and it also bolsters the KBR brand.
Corporate spend was as expected with the increase year over year, reflecting our greater scale and also the select investments, we're making in our infrastructure to enable scalability going forward.
On to capital matters on slide 14.
Net leverage was reduced to one nine X at September 30 on strong EBITDA growth and continued cash generation.
Net leverage will nudge up to about two two X.
Pro forma with the Frazer Nash acquisition that we closed in mid October.
As a result of <unk> increased scale good margins strong cash flow excellent track record and the Derisking actions that have occurred this year.
We're pleased to see another credit ratings upgraded this quarter.
Where are we now carry a double b flat.
<unk> corporate rating.
Up to full matches from where we started about three years ago.
We continue buybacks this quarter, which amounted to about $25 million.
Victor settlement as Stuart mentioned earlier was a significant positive development from a liquidity and legal cost perspective.
This is a major derisking event that affords us more options on capital deployment going forward.
As such we will review our optimal capital structure in the coming months.
And update you on our.
Our latest views on that in our Q4 report that we will issue an early 'twenty two.
Now onto guidance slide 15.
As Stuart said, we are updating our guidance favorably and also significantly to reflect the impact from OLED W. With all of the things effectively as planned.
As Stuart summarized the magnitude of this effort in a short period of time is quite stunning.
We are raising revenue guidance.
For fiscal 'twenty, one by one 4 billion.
Over 20% higher.
That our guide last quarter.
This is clearly rare in the government contracting space a testament to the team that can rapidly mobilized to serve at this scale when called upon.
Could lead this to spilling into next year.
As you can imagine we have and will continue to conduct many procurements to support this activity.
And in turn our invoicing, our customer on a fully cost reimbursable basis.
We will manage timing items between our supply chain and our customer as best we can but.
But we think it's prudent to assume the net cash benefit ultimately may land in 2022.
That completes my remarks, and I'll turn it back to Stuart for the closing thank you.
Thank you Mark.
Excellent job Oliver.
I'll finish on slide 16 on a fairly consistent same here doing what we said we would do on arguably this quarter a wee bit more.
Excellent quarter in fact, one could say a bank.
An absolute focus on the mission of delivering exceptional results strong growth excellent profitability.
Excellent margin performance and outstanding cash conversion.
We have reduced risk and increased capital deployment Optionality and following the increased gas cash guidance in Q2.
We are raising revenue and earnings.
Guidance this quarter on.
Our momentum continues with good bookings and very positive fundamentals in our end markets as we look into 2022 and beyond.
And now I'll hand back to the operator, who will open the call up for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure your mute function is turned off.
You said no turbine chocolate Max.
Again press Star one to ask a question.
Well pause for just a few moments to allow everyone an opportunity to signal for questions.
Well take our first question from Tobey Sommer with <unk> Securities.
Hey, Good morning. This is Jasper bibb on for Tobey. So I wanted to ask you you mentioned, the strong performance and readiness and Sustainment, excluding the allies welcome program, but did quickly shifting resources to.
To support the Afghanistan withdrawal during the quarter potentially negatively impact some of your other work in that segment.
Good question.
To that is no we don't have the work.
Allied welcome was really driven by the supply chain and so really it was a lot of I guess subcontracted.
Personnel and equipment et cetera that we brought into established.
Restructure required and redeployed a number of people of course that that came out of I guess the historical what we're doing in Iraq.
We never mobilized to Afghanistan. So we had those people readily available to deploy so it did not negatively impact us at all.
Got it.
Lab.
And I'll just add that Alison team produced really a great organic growth outside of <unk> as we said in our remarks, they continue to ramp up in the overseas work in Turkey, and Spain on that program. There. They continue to support exercises in the European command over the summer.
Dutifully and other training work in north Com as well, so really remarkable growth outside of that.
<unk> activity as well.
Yeah, that's great and then just wanted to follow up on the on the Green ammonia contract with Acme that you announced a lot of press around this technology with Aramco also announcing a new plant. This week I mean could you just comment on what the RFP pipeline looks like for a green ammonia solutions.
And how are largely thing is our opportunities may ultimately be.
I mean, we've got a lot of studies ongoing in this area as you can imagine is.
As organizations look to.
To drive the sustainability agenda. So I think the market is very buoyant I guess.
The various projects that have different levels of maturity.
We're very pleased I mean, it looks like it's the refresh to go it's real it's funded and it's progressing so I think getting in the front of the queue on this.
Because a lot of these projects are being talked about but this is one that's actually being dominant I think being at being in the front.
Mover advantages extremely strategic so so I think I think we're going to see increasing activity as these get proven out so I think that as we look at the combination of our guests what we call Green Blue and green ammonia sort of being combined.
To produce more greener solutions from existing ammonia plants et cetera, I think it's going to be it's going to be a good market is.
Through this through quite a period of time.
No it's not.
I think it's going to come in one year, it's going to be a progression over multi years. So it's really really good position for KBR to be in.
Got it thanks for taking my questions.
Thank you Jesper.
We'll take our next question from Michael Dudas with vertical research.
Good morning, Alison Stewart Mark.
Hey, Mike.
Stuart you mentioned in your prepared remarks.
Certainly the improvement in energy prices, and some extraordinary improvement, especially overseas.
Gas.
He is going to drive cash flows and lead to custom.
Customers to spend.
More money, but you did mention about how differently, you're going to spend I'm just curious about.
You know how different how ready are the customers to kind of go forward to decarbonize reduce sufficiency and coupons et cetera.
<unk> to catching up on like maintenance or catching up on Tech Ribera go maybe think about this LNG facility because prices were through the roof, So maybe a little bit more.
Sure some of your thoughts on how that plays through and how that could maybe leverage your on your technology side as we move forward. The next couple of years.
Yes.
I think as the attendant question at the moment with many of the international and I guess national oil companies is that they have to be able to I guess sustained revenue and cash to be able to to invest in the future.
And I think the increase in oil and gas prices helps with that considerably and I suspect they will they'll be looking at repurposing refineries to different product mixes that sort of the future I think you'll see a lot of investment in current assets around getting them more energy efficient and reducing their carbon footprint.
Print is a.
No.
Seeing a lot of activity in a brownfield arena, which plays to our strength as you know, particularly around remote monitoring and our <unk> solutions.
Solutions. So I think I think it's a balanced Mike I think.
The companies themselves would admit that.
They need to be need to generate the income in and maintain their assets, but by maintaining those assets get them get them sort of far more efficient and more green and more sustainable and then look at the product mix is coming through in the future a lot of talk of oil to petrochemical for example, and obviously these are technologies that help with that so I think that's going to be.
It's going to be a different solution I think for each of those companies, but but ultimately I think that's the way it's going to play out. So I think we're very well positioned to help with I guess decarbonising, the existing assets and making them more energy efficient and of course at the same time.
They invest in sort of I guess newer technologies and new solutions for the future of a very well positioned for that so it's a nice balance for us of Capex and Opex.
And I think it's I think I think you said oil and gas prices as we move into windows into winter will come under increasing upward pressure as well.
And no question about that.
Follow up is regarding free for NASA.
As you know for closure.
I guess this past month, how are you.
As you went through the process very opportunistic on the acquisition, but over the next several years, how do you see it fitting in and which areas are more robust.
A robust four for revenue growth in some of the synergies that you can get maybe internally in the UK and Australia, but some of that renewable energy technology is something that we can leverage to other parts throughout the USA of many of these technology side, given some of that expertise.
Yes.
I'd first say that the engagement with the phase of Nash folks through this process and that has been fantastic in terms of really truly understanding their high end capability as it points I think to the future of investment not just in renewables, but actually in the government spend opposite the UK and in Australia, and that's that's in areas where at the moment we don't.
Really play in the UK and us in cyber it's in looking at it.
The whole the wholesaler evolution into.
The UK is going to do in space looking at obviously defense modernization, particularly with the with the changes with Brexit et cetera. So I think theres a lot of change coming in the UK and having a high end consultancy business to help the U K and we'll make those decisions as completely strategic for us and I think that really is an amazing.
<unk> opportunity.
Suddenly in Australia to build upon what were doing there already so I think thats. The first part and then the second part is they do come with a cadre of what I would call advisory capability in consulting engineering capability and the ASF renewables, which when KBR features heavily in hydrogen world as everyone's aware, but they bring.
Capability things like solar and wind and nuclear that really augment our capabilities. So I think there is significant synergy when you're advising against governments.
Governments and companies about.
How do they decarbonize and what's a good a good strategy for their particular environment, our GM geography, our constraints around infrastructure. We can we can certainly.
Far broader offering in that regard so I think that dovetails really well and we've got absolutely zero overlap.
So it's all additive and I think the capability that <unk> brings from a tie and technical capability really enhances our resume when we're talking to.
The U K <unk> brought up programs that were traditionally and caveats wheelhouse. So I think when we would go up as a consequence of that so I think.
It really all up we're super excited about this and it takes really sort of if you think about our evolution transformation in the U S to more higher end more sort of strategic services and <unk>.
And where the spend is that's exactly what Frazer Nash thus far is in the UK environment. So really really terrific acquisition, you're right that came to market.
It's something strategically we wanted to do with figuring out how to do it was tricky and this came to market and we took the opportunity to move quickly and secure what we think is going to be a very valuable asset for us going forward.
Excellent. Thank you very much.
We'll take our next question from Andy Kaplowitz with Citigroup.
Good morning, everyone.
Hi, good.
Good morning.
Can you give a little more color into the underlying revenue trajectory of carbon solutions and as we.
A shift here into 'twenty, two I know, it's not right to exclude our AWP from how youre thinking about growth but.
Given it's so big and discrete we can do that so how are you thinking about the <unk>.
5% to 8%, we talked about it being testing 25, but has it gone to 'twenty two I think gave us Stuart or Mark I forgot who mentioned that they mentioned some projects moving to the right. So.
So how do you see the growth into 'twenty to accelerate W. And then does OE W last into 'twenty two.
Yes, I think that we kind of expected Ww question, how long will it last and I think right now it's understandable. We don't know what has happened very quickly.
Very much all.
The teams have done an amazing job.
Getting these facilities up and running and sustaining so.
I think we've got a direct line of sight to year end around that and our goal obviously is the.
As that progresses, and we get closer to the year and we'll have more visibility into next year. So that's probably that's a question I think that we probably underneath to sort of talk a little bit I think you can be confident of our guy.
<unk> if you like in terms of of this year and.
I think there'll be some that will be quite considerable amounts of move into next year, but trying to give you.
An underlying number around that is difficult at this stage and I don't want to get out over my skis and not in terms of the core <unk> business as we would call. It I think the Mark was very I think absolutely right in saying that when you separate out on AWS. The performance of the business has been terrific.
We're well in the double digits and margins.
Growth has occurred across all of our segments and and and.
The performance of delivery has been exemplary.
In terms of our long range targets, we might very much stand behind those.
And I said that as well in my prepared remarks, so I mean, I think we I think youre right I think we will separately.
<unk> is it something that is so large and discrete that we should do that and obviously it has an impact on margins et cetera.
It will be very positive I think in the in the wash around cash obviously, given its scale, but but which is why the deployment optionality increases for KBR going forward. So.
In terms of the core business is performing extremely well and even with the slippage of awards a little bit to the right I think that.
It's not slipping so far that we're worried about any change in our long range targets and I think we are very confident upon them and I think if I would take you back to the backlog slide and talking about our coverage. If you like under the graph to achieve those targets is it's gone up significantly since our Investor day, So I think it all Venezuela.
And the quality of what we're winning and the margins associated with that quality is terrific. So so yes. So that's a long answer for saying we're in good shape.
Was a long question, but I appreciate that Stuart and so just to follow up how is KBR handling supply chain and labor pressure. It seems quite well is your margin has been stable and in line with your expectations and it doesn't seem to be slowing down work, but maybe you could discuss that and then maybe just dovetailing with that and we know you've been focused on sort of costs that over.
And sustainable Tech. So can you still make progress despite sort of the supply chain. So less labor constraints that are out there.
Yes, I think in the markets. We're in we're not really seeing too much pressure on a lot of what we do of course in the government side is cost Reimbursable and of course as the as the pricing pressure comes with protected in that area and in terms of sustainable Tech again, we know the answer.
As of pricing pressure with back to back so I'm not worried about the supply chain in terms of the commercial risk in terms of the supply risk I think we're we've got a number of suppliers that we've worked with for numerous years and I think that we are in really strong relationship shaped with them that we can manage that and have been managing that.
Two two really with no disruption.
And to the extent, even with getting during COVID-19.
We move to two using things like Google glasses to do inspections and things like that to ensure things were continuing on track. So so I think theres been a change in the way that people operate for the goods. If you like to manage these situations and I think from a supply chain risk perspective.
Very well isolated so.
We watch we're not complacent in any way, but I think our teams are on it.
I appreciate it's Stuart.
Well take our next question from Sean Eastman with Keybanc capital markets.
Alright, great.
Great.
Thanks, William Thanks for taking my questions.
So maybe just kind of expanding on.
And his question.
Just as we think about next year I know, it's not guidance on yet but.
We've got to.
Work with our models here.
Clearly we have to be careful around the operation allies, welcome revenue and what that looks like next year and how that comps for Ges, maybe the other thing.
B just the outsized margins in STS maybe it's harder for STS to expand margins much into 2022.
Is there anything else you would point out at this juncture just as we think about that bridge to next year and making sure we've got appropriate numbers out there.
Yes, I mean, I think I think Sean your statement on STS is is not quite on the Mark we still feel that given where we are.
<unk> and the technology cycles, where we're actually driving the growth within that business.
We think margins.
Looking really really good going into next year.
So I don't see any downward pressure on SaaS margins at all.
Expectation is they will continue to go up and we will.
Obviously give more guidance on that as we get into next year, but certainly the quality of earnings that we secured which suggests that that trend will continue so and remember we were working off some of the still working off some of the I guess the more commoditized projects.
That becomes a lesser part as well so again that just puts upward pressure on margin. So I think.
That piece of it we're pretty confident and I think we again stand behind what we said at our Investor day and that was very much that we think diesel incrementally grew 1% to 2% per annum.
Over the course of the.
2025 guidance.
Florida set so thats good.
And.
I would say of course, we had some good news at the front end as you know, we're well over 20% at the beginning of the year.
A little bit abnormal.
So so so I think coming back to a statement around.
$1 billion plus business in the mid teens for 'twenty. One I think we're very confident around that and then upward pressure on growth revenue line and upward pressure on margins that see that expansion of earnings around the STS business as we move forward.
Really comfortable on that.
And in terms of.
Is the guide a little bit we're not guiding it's all around the 2020 five targets that sort of 5% to 9% revenue CAGR around what we're doing in the GSA is absolutely solid.
Continue around.
I would love to be able to give you more color annoyed that when you pass the end of the year, but as I said.
If I get it wrong and just beat me up such that I don't see it very much so.
I mean, there will be obviously it will carryover I think there is an opportunity for some of the task orders for sure to be extended but how many how many basis, how many facilities how many people who are long.
Into society.
Thats, a really difficult question to answer today.
Okay very helpful.
And then I joined late so apologies, but I just heard someone mentioned.
Sort of some.
Some procurements being pushed out is that is that just a function of the CR dynamic.
We just need to wait for a budget to have some of those newer programs adjudicated.
And.
Just with the momentum in <unk>. This year, obviously the performance has been fantastic.
It would be helpful to just frame sort of what.
A breakout scenario what would drive a breakout type scenario for Ges as we look out.
Over the next year or two what types of things.
Sure.
Could could surprise to the upside for GFS.
I mean I think.
They were all pretty surprised although AWS I think that was yes.
Quite a surprise in that.
Yes, Mark with the pace of the tell me and us.
Is that tenure as CFO and I won't say, how long that I'd say, that's the hardest by the AIDS.
But that but.
The increase year over year.
Revenue by by such a significant amount over 20% in one quarter is quite remarkable so.
But in terms of that we've got.
Okay.
Well into double digit numbers of procurements that are ongoing if you like on many due for award are well over $1 billion.
And I think if we win our fair share of those.
We could have a breakup scenario, but as you know weighing these is tough.
So.
So we take a probabilistic view of that and that's how we build our models.
So I think I think that's probably the best way to answer that at the moment.
In terms of things moving to the right. Yes, I think it has a lot to do with the CR.
And just timing, it's not like we've lost anything or whatever so the so I think these will move into <unk> I think I think we're looking at a very strong bookings quarter in Q4.
EW will help greatly to that as Mark said and.
And that's a very nice position to have because as things start to catch up in Q1 et cetera.
We can continue that momentum so so it puts us in a.
Quite an unusual but strong position.
Not too shabby and Dave Thanks for the help.
Thank you.
Well take our next question from Jane Kieran.
Alison.
Hey, good morning, Mark and Alison solid quarter and outlook.
Thank you Dana and thanks, Dan.
So first off here given the growth forecast around at CES for the next few years.
How do you feel like you have the resources the people in place to date drive that neither any constraint in that business you are having to work around today.
No constraints or having to walk around I mean, I think that we.
We sell IP.
And ill just say its something thats.
Doesn't need too many resources.
We continue to to help ensure that it's the most efficient and the most.
I guess.
<unk> gotten the lowest carbon footprint and things that I think we're very much at the forefront of that but it's yes, it's not a it's not a big resourced business we have.
Got a lot of critical capability around process and things like that but.
But.
It worked for us for many years, a very specialized in a particular technology and and so that is quite a solid place to be so.
I think also that people are just super excited.
The.
The change in profile around that part of the business.
The performance being.
As I always say that part of one of life's great things has actually been part of our team is doing really well.
What's your best work experience really and I think that team is proving that out. So I don't think were really the attrition rates are not confounding in any way that the ability to find key resources given our momentum in that particular business is not too difficult.
Say its not a heavy personnel driven business, because thats, where the IP.
So we're feeling feeling feeling that again, we will not be complacent at all but I think it's a.
We're very much trying to ensure that KBR is a fantastic place to work with.
A bit of a talent magnet in that sense, and we will continue that journey, but so far so good in terms of resource constraints.
Got you. Thank you and you also made a notable announcement with work with a major utility in the STS segment. How are you seeing the customer profile evolving.
Overtime.
Major utility.
Could you clarify when you say utility.
Well, maybe I, maybe I missed misread or at least I'll get back to you offline about this okay. Thanks.
Thanks, Ed.
As a reminder, if you would like to ask a question. Please press star one.
Again that is star one if you would like to ask a question.
We will take our next question from Jerry Revich with Goldman Sachs.
Hi, This is <unk> Mohan on for Jerry Revich for government solutions, you mentioned, the 9% revenue growth for science and space was all organic can you provide the organic growth for the other platforms in the quarter.
Jessica.
We do disclose those in.
In the case, so mark yes.
The primary rate reference here I'll tell you right off the bat I think I think we gave you the readiness and Sustainment.
Organic growth, which was a huge number but.
<unk> was 25%.
Readiness and Sustainment so.
That was terrific the international piece was about 4% much higher than Australia.
A little more flattish in the UK and Australia continues to do really really well in defense and intelligence.
Which includes Centauri was about seven.
So strong strong throughout.
Okay, great and for the Heritage Technology business can you tell us what the book to Bill was in the quarter.
It was.
Seasonally.
So about a 0.6.
Yes.
Between five and six.
Okay. Thank you.
I mean in that business they always have.
I guess, a softer Q3, just some budget cycles.
Then people tend to sign contracts.
Tracks as they move into Q4 as they spend the money for that particular year and get the commitments going in and then it will start again in the first of January So I think we will see.
We our expectation is that that business will have a stronger book to bill in Q4 and the <unk>.
Pipeline would suggest that that is the case and that's been the historical norm for that business. So again no concerning on.
And I think just the quality of the of the work that we're winning as oxy what was really important in the quarter.
Understood. Thank you.
That concludes today's question and answer session. At this time I will turn the conference back to Stuart Brady for closing remarks.
Thank you.
Thank you very much for taking the time, we do appreciate we know <unk> got other other other places you could be in that but thank you for taking the time to listen to US. This morning, I think an amazing quarter.
For all the reasons, we described in her opening remarks and.
We're very excited about where the businesses and I'm glad it's heading north no questions today on excess which is terrific because that.
As I Shouldnt really bring up I'm Alison has given me target, but I think that I think is very positive in the sense that.
Yes.
I guess the uncertainty is now behind us.
Again another.
Major legacy issues resolved. So so all good in that regard so we're feeling that.
Today is we're in a really good shape.
Going forward to 'twenty, two and beyond and.
And thank you for your continued interest.
Thank you.
Okay.
Yes.
Yes.
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Yes.
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