Q1 2022 KBR Inc Earnings Call
And thank you for attending Kbr's first quarter 2022 earnings call. Joining me 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 questions.
Today's earnings presentation is available on the investors section of our website at <unk> Dot com.
This discussion includes forward looking statements, reflecting kbr's views about future events and their potential impact on performance as outlined on slide two.
These matters involve risks and uncertainties that could cause actual results to differ significantly from these forward looking statements as discussed in our most recent Form 10-K also available on our website I will now turn the call over to Stuart.
Thank you Allison and thank you for joining us this morning.
I will start on slide five.
You know, we always kick off with a focus on ESG and today is no different.
Is special and something we are extremely proud of.
No ship of course with NASA.
For two decades, NASA has been developing and of course as recently launched on deployed the James Webb telescope.
This is an incredible engineering feat with a multitude of first of a kind on this culminated in delivering an opportunity to look and explore the universe in a way we have not been able to well up until now.
NASA was supported by a number of industry players and I'm proud to highlight that KBR played an integral role throughout the design build test launch on commissioning of this amazing program not just largest science mission ever.
In addition, <unk>.
<unk> was recognized by NASA and a very very special way and being awarded the exceptional briefly metal.
The bravery metal is not a small thing in fact, it's a big deal and it's not often awarded in fact, the last time. It was awarded was actually in 2005.
And we're very very proud to be recognized for implementing a robust safety program for the James Webb project and shooting safety of personnel on hardware.
Cited for CT bravery demonstrated to protect and preserve human life on vital flight hardware during the agency's ambitious on tireless, Germany to unlock the mysteries of the universe.
So just think complex lifts cryo vacuum testing preservation of assets investments personnel and safety throughout the development the testing the launch the flight III.
Three things like Hurricanes, and Pandemics et cetera.
This is not only integral to the success of this landmark mission, but as you know, it's a core part and integral to Kbr's culture and values. So once again doing what we said we would do.
So now onto slide six and some quarterly highlights.
Once more we saw growth across all our key metrics with frankly outstanding consistent delivery in each business line.
Revenue was up 17%, one 7% over last year and the resultant adjusted EPS grew 29% at the group level.
This is a consequence of increased revenue and primarily the GFS segment, coupled with outstanding operational performance across all of our businesses due to our amazing people delivering each and every day.
Our focus on the mission.
Overall client success once again delivered strong margins and strong cash conversion.
Our bookings in the quarter were $1 $2 billion.
Please note that this does not it does not include Gizmo, which we plan to book in Q2.
And this quarter is typically a slow quarter in government as I'm sure you're aware, especially given where we are with CR running through to mid March.
Sustainable Tech had a very very strong bookings quarter, even with the headwinds of our exit from Russia and I think this really demonstrates the resilience of this business.
We identified unconverted opportunities from across the globe.
Earlier this month, we would resolve the legacy CCP P. Martha and I'm pleased to report that the initial monies have been received by a joint venture.
And I expect it to result in a cash upside to KBR, a circa U S dollar $200 million in Q2, and another circa $70 million early next year.
This settlement together with monitoring our withdrawal from Russia did result in a mostly noncash after tax charge of circa USD $150 million.
It reduced uncertainty.
Reduced management distraction reduced legal costs and of course, it cleans up our balance sheet with expanded capital deployment Optionality.
So bringing this altogether.
Terrific growth strong operational performance that's cash on margin.
Proven resiliency to living attractive bookings in STS and Derisking by retiring legacy and ongoing issues and winning our largest recompete for the year, which was gizmo.
Which will be booked in Q2, leaving us with very very little Recompete and the balance of the year. We are delighted to advise that we will be raising guidance on more on this later from Mark.
Now onto slide seven on the outlook for our government business.
The spending priorities have not changed defense modernization space, including several military entailing commercial space cyber digital and intelligence with an emphasis on emerging technologies, all aligned with where we have positioned the business and as we presented previously.
With recent events, there's of course, an uptake across both our defense and Intel business, we can't really talk too much about this work.
Our readiness and Sustainment business.
Where we support both the U S under European commands for low cap under various pre positioning missions for equipment.
So this of course too early to tell the extent of our longer term enduring mission, but clearly the U S and NATO have an increasingly important role to play over the longer term given the recent Russian aggression.
Internationally the outlook is similar with heightened activity across all our key sectors.
A notch has come out of the block strongly in the year posting their largest ever backlog under Australia businesses continued to deliver terrific margins on growth.
<unk> International business as a real driver of margin enhancement and as I've said, many many times a clear differentiator.
We have highlighted some key wins on the right.
I won't read them all is that all been announced publicly but the themes are clear prototyping classified space capabilities human health and performance Nossa ground systems and satellites and you can see the sizable long term Gizmo award at the bottom.
Our Gis book to Bill and what is a seasonally slower quarter similar to Q1 of last year, so not really a surprise but.
But unimportant takeaway is that the <unk> business has an impressive 90% 92% of the work secured today to deliver a 2022 numbers.
Perfect place to be.
Now on to slide eight and we'll talk a little bit about sustainable technology. The outlook here is also terrific high.
High oil and gas prices, coupled with continued sustainability commitments and a need to build additional capacity across commodity supply.
Including ammonia clean defining products olefins on petrochemicals.
Consequence of World events is expanding global opportunities for our business.
We continue to see orders of aging assets looking to companies like KBR to help them Decarbonize and drive efficiency via more data enabled decisionmaking.
We've highlighted some recent wins here to demonstrate this.
Again, I will not read all the words, we've also announced these recently, but the themes are again clear.
Olefins demand at scale, smart maintenance plastics recycling green and blue ammonia hydrogen et cetera.
The STS book to Bill in the quarter was one three.
Combined with a pivot away from Russia. This really demonstrates the global nature and resiliency of this business.
Excluding the de booking of the Russian work the book to Bill of New work won in the quarter was actually $1 four super impressive and I'm sure you'll agree.
And just to reaffirm what we said last month that the.
Despite no longer having the Russian market.
Outlook for <unk> for the year has not changed.
On this on the previous slide we've shown the backlog for each of the businesses.
Buying for the group there stands at $18 $5 billion with options.
And our pipeline continues to be very very sizable with line of sight to over $100 billion over the next several years, but importantly, with $7 billion in proposal prep and 8 billion awaiting award.
We continue to see over 150 opportunities at or above $100 million, so nicely balanced across the portfolio.
So following on from a great year in 2021 momentum continues across all our key businesses with a fantastic start to the year and great visibility going forward.
Leading of course to an increase in guidance now over to Mark.
Terrific. Thank you Stuart I'll pick it up on slide 10 for the Q1 financial performance summary.
As you have heard all key metrics were up significantly reflecting favorable market conditions and the strong overall business execution that Stuart highlighted moments ago.
These factors are the drivers to increasing our guidance, which I'll cover a little later on.
Revenues for Q1 were up 17% driven by our government segment, where we saw healthy growth across all four business units.
Overall margins were solid with both segments right on track with our 'twenty two targets <unk> at 10% STS at 16%.
Adjusted EPS was up 29% driven by the overall EBITDA growth coupled with modest improvement in non operating items year over year like FX interest and taxes.
Cash flow was terrific and right on track with our increased expectations for 2022.
Working capital effectiveness improved with overall dsos reduced.
Strong cash flow further strengthens our balance sheet of course, and as previously announced and as Stuart covered earlier, the subcontractor settlement in April will add significantly to our financial capacity as well.
On to slide 11 for our segment details.
Government continues to roll with year over year topline growth of 25%, 21% being organic and strong margins of 10%.
Defense and Intel was up 8% year over year, all organic and 11% up from Q4.
This team continues to deliver its IQ portfolio extremely well and in high advanced technology areas.
This includes some of the contracts Stuart mentioned earlier.
Science and space was up 2% organically from last year and also up 10% sequentially from Q4.
While new business proposals awaiting award continues to know in this business unit.
And space team has won all of its recent Recompete and is receiving terrific performance scores across each contract base.
Readiness and Sustainment was up 62%.
All organic demonstrating.
Demonstrating the strong franchise, we have in this part of the market.
Again.
<unk> team is now quite busy supporting theater activities in the European command plus its wide range of recurring programs around the world.
This team is always ready to serve and deliver.
Yeah.
International grew 24% with Frazier NASS in Australia being the main drivers here.
The Frazier NASS integration is going very well.
And the range and depth of advanced capabilities continues to impress us.
And Australia was once again at the top of class posting growth of 17% in the quarter.
Margins are solid and as planned across all <unk> business units as I said upfront.
Over to STS. This business is also delivering at a high level.
Just stepping back this team continues to build an attractive book of business and is leveraging its leading market positions as.
As clients double down on sustainable cleaner and safer ways to operate.
As we've said many times before this is truly a global business with access to a broad spectrum of the market.
And with a highly agile sales team.
Impressively, despite removing in flight projects and future opportunities associated with Russia.
Other opportunities have been harvested and there is no change to the STS financial outlook for this year and beyond.
All remains robust.
SCS revenue ticked down in the quarter due primarily to our intent to exit the commercial activities in Russia.
Which we announced last month.
And our previously discussed and announced exit from Commoditized services in 2020.
In the quarter this team generated $43 million of EBITDA and 16% margins.
Electing our strategic shift towards higher margin sustainability, enabling differentiated technologies and engineering solutions.
From a comparative perspective, you will likely recall, we had a program closeout benefit last year in the first quarter, which goes margins by about 3%.
So from a comparative perspective margins in the STS business are up nicely year over year and 13% to 16%.
An outstanding result, and consistent with the transformation plan, we set out for this business just about a year and a half ago.
In summary, both businesses demonstrated great agility and resilience in the quarter delivering strong growth excellent profitability and very strong cash results.
It takes us nicely to liquidity and capital deployment on slide 12.
As said earlier, the balance sheet and liquidity position are in terrific shape.
In Q1, we upped our dividend by 9%, we continued buybacks and all the while leverage downtick to $2 three X EBITDA.
The settlement with our former sub contractors on Nick this occurred in April and approximately $200 million will be reflected in cash inflows from investing activities in Q2.
There's more to come next year as well as Stuart covered earlier.
While this inflow won't affect operating cash flow. It will of course add directly to deployable cash which of course is enabling the game.
On to slide 13.
With a strong Q1 eight.
85% of work under contract across the consolidated portfolio.
Favorable business conditions and growing deployable capital, we are increasing our full year adjusted EPS guidance to a range of $2 53 to $2 65.
A <unk> <unk> increase over our original guidance at the midpoint.
We're also narrowing our revenue operating cash flow and adjusted operating cash flow guidance ranges for the year as outlined here.
We expect consolidated EBITDA margins of 10% for the full year with future quarters expanding from Q1.
And in terms of timing, we expect 50, 50 split and full year EPS cadence between the first half in the second half.
Thank you and I'll now turn it back to Stuart to finish it up.
Thanks, Mark nicely done.
Now to summarize following a great 2021, we have started 2022 with a bang <unk>.
Strong growth double digit growth in revenue and adjusted EPS across all our key metrics without standing operational performance, including safety, which is an absolute testament to our great people.
A significant derisking with CCP I rustling exposure resolution combined with our cash injection of U S dollar $200 million in Q2, plus another 70 million circa in 12 months' time.
Together with another quarter of excellent cash conversion. This of course results in greater deployment, optionality and reduced uncertainty and of course reduce distraction.
The market outlook across the portfolio remains highly robust and the associated pipeline of opportunities are attractive and aligned with a positive outlook on the raised guidance in short momentum continues.
Thank you and I will now hand, it back to the operator.
Open the call for questions.
Thank you Sir.
If you'd like to ask a question. Please press star followed by one on your telephone keypad now.
Thank you for your question.
We kindly ask that you might just have one question and one follow up only.
If you have any further questions. Please press star one again to get back in the queue.
Our first question today comes from Tobey Sommer of true Securities. Your line is open label.
Yes.
Thank you.
My first question would be what is the proportion of Recompete business remaining for the year end.
In for calendar 'twenty three.
Thank you.
Good morning Tobey.
Alright.
Yeah.
As we said we've won our largest recompete of the year with Gizmo that comes through in Q2 and obviously.
But we've announced that and that actually makes a recompete levels very very little for the rest of the year. So I don't think anything significant that would derail story and certainly in this year and going into next year.
Some larger recompete Vanessa coming through.
The timing of that is still a little bit questionable.
Backlog and NASA at the moment quite a bit waiting for award.
But but it is quite telling them. We want gives me when we went on a best value basis.
I don't have the exact percentage of Recompete for next year might do you have that.
Looking for Tobey.
Yes, im not going to speculate, but I would call it a fairly normative in the government contracting since year.
Had you know.
Really low recompete, but very good success rates in the last couple.
We're very open about that the 'twenty three 'twenty four is more normative.
As we get closer to that year, I think we'll give you a better waterfall.
All of that outlook.
In the second quarter call and we will know more about timing at that time as well.
But I think the takeaway for this year is that very early in the quarter. Obviously, we've won we've won our largest recompete.
Most of what we're bidding now is all additive.
Thank you and then.
With respect to funding actions I'm curious if your customers had the different so you noted a difference in the in.
In the calendar first quarter and then so far in April after having the budget was there kind of a.
Any kind of notable change one might imagine improvement.
Yes, I think I mean.
Obviously it gives you a award was a good sign but I think it's too early to tell.
I think we will know more as the quarter progresses.
Yeah.
In.
Lastly does your.
Uh huh.
What's your posture now that you have finally put the period at the end of the sentence.
If this at all related.
Times of work and you look at M&A, what's the quality like if the pipeline for material kind of additions.
And well I mean, clearly obviously.
The excess cash.
Hugely additive to our Optionality and obviously the cash conversion continues to be strong. So we feel pretty good about the.
Yes.
The level of deployment, we can do.
As you rightly say, it's all about what's in the pipeline today.
And I think and I think the world is settling down a little bit, but multiples still tend to be quite high.
It's quite a bit in the market.
Again, it's all about finding the things that are very complementary to what we do and align with our strategic vector. So we're always out looking acquisitions have been a very core part of our story.
<unk>.
We're not perfect of course, but I think we've done them reasonably well and that would be very additive to.
To shareholder value, so I think more to come probably.
But ultimately I can't give you any details of course, but but there's quite a bit out there and.
I think.
We're pretty upbeat as well with Frazer Nash, which we did obviously the end of last year.
They are really performing at the top of the level that we expected in bookings where as I said in my prepared remarks.
At the largest they've ever been in terms of backlog so.
So again I think we're very upbeat about the opportunity to do more acquisitive.
Thank you very much.
Our next question today comes from Michael Dudas vertical.
<unk> partners.
Please go ahead.
Good morning, Alison Stewart Mark.
Yes.
No.
First question on STS.
Can you as you look through and looking at the prospects in 2022 and beyond.
You see a lot.
Press.
It releases about ammonia hydrogen.
<unk> had a pretty broad based wins here lately what areas do you see over the next several quarters that might.
Be more beneficial to see more activity on your front and how is the conversion from when customers are starting to discuss early advisory thoughts about what to do in these technologies.
Moving ahead towards implementing final decisions is that starting to accelerate because of <unk>.
Turns about time to market and policy goals et cetera, which unfortunate.
So I mean, there's a lot of dynamics at play in that question, Mike I would say that.
Terrible water in Ukraine of course has changed.
I guess peoples outlook in terms of speed to market.
There is obviously, a constraint and in gas as a constraint and a lot of ammonia et cetera, and we're seeing people accelerating this is around new developments and especially expansions across that portfolio. So.
Of that dynamic at play.
You are seeing of course, the whole sustainability and climate change agenda still.
Very very strong and again, we're seeing people come to market.
Decisions, obviously impact future energy security and I think that all of that bodes well for STS and the level of activity. We've got in that business is enormous.
And I really really upbeat about that.
<unk> and <unk>.
The fact that they pivoted away from Russia. This quarter. So so so well and filled that filled the hopper by really pointing what is a very agile.
US into other areas, they have done terrifically, well and a big shout out to them because.
We had to do it quickly.
The agility and the resilience of that business is showing through in the numbers and the book to Bill and so I think that market is red Hot and is Red Hot for a number of factors I've just described.
High oil and gas prices of course also help in terms of a cut.
Customers' capital deployment options. So so I think we're seeing companies well start until the kit.
<unk> assets and how to how best to make them more efficient and how to particularly to drive additional output given the constraints in that market.
And I'll add just one thing specifically encouraging is on hydro PRT.
Our plastics recycling capabilities, coupled within Europe . We've completed three we've got a lot of projects in flight right now that are.
Advisory consulting oriented relative to feasibility and <unk>.
And implementation of the three that were completed all three have resulted in real projects coming out of.
Of those studies. So it's still early days on all of that played but really good early signs of conversion rates of advisory too real.
Highly profitable projects, but also ones that aren't really impactful to the green future of those clients.
Okay.
Okay, that's encouraging.
Just a quick follow up on what you said just at the end Stuart about.
Aging assets and I was intrigued by the contract that you won for the maintenance.
Service predictive program at work.
In the Middle East.
Think there's probably a big backlog of clinical types of projects that are ahead.
Given the lack of spending for this over the last couple of years.
<unk> companies to become a company, we're trying to do now.
No absolutely I mean this is through our technology led industrial solutions business and very much looking at predictive preventive and getting in front of the curve with the customer to drive to drive down their carbon footprint and deliver efficiencies and greater.
I think the asset base, I mean that particular facilities in jubail.
<unk> seen a picture of vintage avail is a multitude of assets.
It's an enormous industrial base.
We've already started to do work for.
Our system company of them just down the road. So so I think this is an enormous opportunity in that arena I think.
This whole data driven solution is the way of the future.
As we get more sophisticated and plant operators really understand how to how to sweat their assets in a more kind of a friendly way.
So I really I'm really excited about that part of the business and certainly there is a lot of momentum in the insight product, which is our own IP intensive how do we do remote monitoring the number of licenses we sold in the last year is equivalent to what we sold the previous three years, three or four years and so the momentum around that is terrific.
So thank you Stuart and Mark.
Thanks, Mike.
Our next question today comes from Brent Thielman of.
Davidson.
Your line is open.
Oh, Great Hey, Thank you good morning.
Hey.
The readiness and Sustainment business I mean, great comparable here this quarter I was just curious if theres any remaining.
W work impacting that or is this really more function.
Other activities around the globe, including operations in Europe .
Yes.
Expected question around to AWS is a bit of a tail that came into this quarter of course on <unk>.
Projects, essentially complete now, but but the way to think about it is ex contingency the GFS business globally grew <unk>, 6%.
Yeah.
Organically on and I think that's very telling and aligned with our long long range targets. So so we're very pleased with that.
<unk> dot and <unk> businesses, obviously benefiting from from.
No one likes to benefit from difficult situations, but the fact to the Mt is economically we've got an uptick in activity both in defense and Intel business that we can't talk too much about but obviously in the <unk>.
<unk> business from the work we're doing on low cost both in the U S and.
And obviously European command, where there's a lot of activity and we also run as Youre aware or many of you are aware the key positions.
Stock contracts in the U S.
To get equipment ready for deployment and there is an uptick in activity there and as you would expect as well so.
We don't know how thats going to play out through the course of the year.
Certainly we don't see any short term change in that but.
Is there going to be a longer term and joining mission as NATO really starts to become one one thing that's really happened here is that NATO is back.
I think under the previous administration, there was a lot of challenges around Nathan.
Certainly.
The importance of NATO and the relationships across the allies.
Is front and center so.
Will there be an enduring mission a betting person would probably say, yes, probably <unk>.
<unk> scaled out as what it looks like we don't know, but certainly theres been quite a bit of uptick in activity around around.
As we previously said and as you would expect.
Okay very good thanks, Stuart I guess the follow up would just be maybe an update on the non defense.
Related elements of the government solutions business, and I guess, particularly around expectations. This year.
Science and space is growing and I guess, a relatively slower clip this quarter kind of stable mass and budget you've got the gizmo contracts just curious what your expectations are.
Through the course of the year in areas outside of defense.
Yes, I mean that business I mean.
It did grow 2% in the quarter, but there is a plethora of things in the pipeline waiting for award that have been I guess.
Waiting for several months now to come through the system and the fact that gizmo came through in the way of data and it was the best value Award.
With no with no actual protests, which is unusual these days which is good.
And so anything we are bidding there is additive.
There's quite a few billion dollars of work.
We're bidding there so I mean, if the timing of that.
It all happens over the first half of the year I think youll see quite a nice nice uptick in that business.
If we win our fair share, but but again, it's really unknown in terms of timing. So it's tricky to give you any guidance, but but we are pretty comfortable with our overall GFS growth. We're very comfortable that the combination of the non defense in the defense will actually meet our expectations through the course of the ESO.
That's why it's nice having these various elements of business I think we're well positioned in all of these markets and I think that combination is the power in this in.
And I said in my prepared remarks, and I'll say it again, we don't talk about our international portfolio quite enough.
The performance of the UK business and the margins they are delivering is absolutely terrific.
Mark mentioned the growth in Australia, as well as 17%. So all up I mean, the margin enhancement the growth that comes through from that international business is absolutely terrific. So so I think all odds in combination.
When you look at science and space. It really comes down to the timing of awards and we're very pleased now that we've got we've got through our largest recompete.
Okay. Thanks best of luck.
Thanks, Matt.
The next question is from Andrew Kaplowitz of Citigroup.
Your line is open.
Good morning, everyone.
Good morning, Andy.
Stuart and Mark can you give us some more color regarding STS revenue for 'twenty. Two I think you said in the past of KBR delivered double digit growth in the segment for the year and I know Mark you said no change to guidance for the year I think Stuart you said the market is red Hot So does revenue growth in this segment accelerate from here and you should return to revenue growth even in Q2.
<unk>.
No absolutely.
I think.
The interesting stat, we obviously had to <unk> some revenue from Russia.
We said we would we've crossed the threshold if you like.
Working off the the heritage Reimbursable EPC as we built up the book of business that really is our future and I think that that threshold was all about Matt this quarter, just slightly off but but we're there or thereabouts and the growth coming in the core part of STS is in.
In line with our expectations.
Our book to Bill would prove that out and I think the pipeline would prove that out and I think the outlook in the market with <unk>.
We're very very happy with that and very excited about it actually and the opportunities that we discussed earlier and Mike's question and including plastics recycling as Mark highlighted so I think it all bodes well for this year.
Sure.
For the foreseeable future interest.
Very helpful. And then maybe related can you give us some more color into how your business or sharing given the macro challenges that are out. There. Obviously you already have accounted for KBR is Russian.
But are you seeing any impact on STS from a weaker China or China, Lockdowns and are you seeing any supply chain issues slowing down projects doesn't seem like that but any color would be helpful. No. We're not really impacted by the supply chain issues, just given the sort of what we do and I think the inflationary pressures we've talked about before.
Given a lot of our work is cost Reimbursable I think we're in pretty good shape there.
China market, we do what they're in and our technology business.
Of course, but I think just the way that we're seeing more activity.
In places like North America, and the U S in particular than we've ever seen.
I don't really have too much concerned about that we will be watching of course, we're not complacent in any way shape or form, but I think the breadth of the.
I mean, it is a global business.
Proven that.
Hopefully you're comfortable that that statement is absolutely true.
We see opportunities all across the world that we can convert to keep this trade and running at the speed is running so.
I'm not really concerned about that.
Statements about our expectation of double digit growth just in the last question there and I think that will continue despite lockdowns in China, and I think youll start to see various countries ebb and flow just because of certain circumstances, but I think the global nature and there is only so this business is well proven.
I appreciate that Stuart.
Next day Mckee, we have but then of Stifel.
Your line is open.
Great. Thank you and good morning, everyone.
Good morning welcome.
Thank you.
Stuart or at least I guess in your release you guys noted that you booked 85% of what you need to hit your guidance for 'twenty. Two Stuart I think you said, that's now 90% what do you see as the items that either drive guidance higher or result in you're missing on the low end I imagine.
You guys are thinking there is upside to what you're putting out there.
Yes.
A conservative bunch.
Everyone keeps beating us up a value, but it's better to be that way I mean, it's 90%, we've got 90% work under contract with <unk> at 85% overall.
And one has to remember that we do have.
Things that come through that we don't know where theyre going to come through yet a small idea accused on contract scope growth a lot of what we do in the consulting arena.
High end engineering smaller contracts and things and that makes up 10% to 15% of our revenue every single year and so when you add that on to the 85% number you can understand that we feel pretty good about the coverage for the full year and meeting the guidance that we the increased guidance that we've put out so.
With the cadence of awards, if that starts to come through now that the budget is clear I think that.
Even a low recompete position and given our commitment in STS and the double digit growth I think that that obviously.
<unk> of meeting what we said.
Is there an opportunity if things break on time and things like that to do a bit better of course there is.
Okay. That's helpful. Maybe just on the STS side.
When you guys put out your Investor day or in your Investor day release back in 'twenty, One I think oil was something in the high <unk> today over 100, how much of a tailwind do you expect that to be for STS as you think about your 2025 goals, obviously, you've sort of reaffirmed that guidance.
I guess im wondering why that wouldnt be more of a tailwind just given some of the things you guys are doing on the clean energy side.
Yes, I mean, usually when you go to market and say that you've got double digit growth with margin expansion at the same time people.
I think if we can say that that would be getting.
But as ever as the market evolves you're right.
<unk> does not.
Marketplace, but I think.
Obviously, you've got you've got environmental pressure and climate change agenda pressure on.
On the big oil companies and Youre seeing them, taking the revenue that they're receiving from these higher oil prices and decarbonizing their assets and looking at ways to diversify the portfolio, which plays nicely into our STS positioning.
So youre right a significant tailwind in that market, but I think at this particular point.
Sure.
Quite right that we stick by our guidance the double digit growth with.
The margin expansion that we've put out there I think that would be if we achieve that and maybe a little bit more of that will be a terrific outcome and we will set the backdrop for that to continue into next year and beyond.
Thanks, Stuart and obviously it was not trying to be little anything you guys are doing it just seems like you have some some pretty serious tailwind there.
Totally understand thank you very much.
Thank you.
Yeah.
Next in the queue. We have a question from Jamie Cook of Credit Suisse. Please go ahead Jamie.
So just quickly on for Jamie Thanks for taking my question.
My first question is following up on the or and asked the question earlier.
Moderate throughout the year.
What would that mean for government margins.
I'm not sure I heard the first part of the question, but I would say government margins did 10%.
In Q1, that's online with target.
Yeah.
There is some modest.
Dilution from finishing up OTW embodied in that number.
And for that reason all other things.
Being equal we actually expect a modest uptick in margins in ges over the rest of the year.
Im not sure it around to a bigger number but nonetheless, there will be more there in light of that absence of OTW ramped down.
And Thats positive plus.
The types of wins, we've had and the market conditions do not suggest any deterioration in margins either so we really feel good about where they're heading.
Their contract mix the international piece of course always helps as we've talked about over and over again. So the trend. There is good and I think that was demonstrated from Q4 last year into this year.
<unk> was running at its height.
Quarter of a percent coming into this quarter and the other piece to layer onto that is just the growth of our international portfolio, where the margins are higher.
Meaningfully so.
Consequence of that and there is upward pressure on margins also so so far so we're feeling pretty good about the 10% that we've put out there and I think that is a solid number to be modeling as we look forward.
Okay. That's helpful. Thank you.
As a follow up I read in the news that the.
Global household.
The contract of work have trusted that thank you guys.
It impacts our outlook.
Got it if any.
Impacting our outlook if any thanks.
Yes, we always said 'twenty, two that would probably be very little or no impact on household goods, whether this was resolved earlier or later.
And when we presented the overall impact to KBR of that contract through time.
Again.
Short delay six months delay so it wouldn't really impact 25 numbers and that holds true I mean, the current status. There is in the federal court of claims having the protest was obviously denied and resoundingly. So.
And the other vendors have gone to the federal court of claims sizes there right.
But they have put out.
Backstop to that decision at the end of October So we will.
It may come earlier of course.
It gives us an opportunity to to plan further and de risk as we as we start to build up the organization and do that sort of whole transition. So so we're feeling that.
That all still plays as it was previously presented and we'll know more as the year progresses, hopefully before Q3.
No later than that.
Generally people know nevertheless, unexpected consequence in 'twenty, two and that remains the case into 2003 and Galen story.
Okay. Thank you.
Thank you.
Our next question comes from Sean Eastman of Keybanc capital markets. Your line is open Sharon.
Good morning.
Coming back to the 90% backlog coverage and GFS or 2022 could.
Could you tell us what that number is for the out years I don't know if you have that in front of you or maybe for 2024 or 2025.
Thanks.
Sean It's a good it's a good question I think we were well over 65% it must be.
It depends what you assume for household goods and how that impacts the numerator and denominator in that but.
But ultimately it's <unk>.
I would say, it's above 65% today for obvious reasons, particularly with with the wins that we've had.
I don't have the exact number, but but silver 70 over 70% milestone.
Okay. That's very helpful is not just one year, it's the aggregate revenue production over the course of the five year period. So we're sitting there at seven plus 70%.
Today, and that's grown nicely sorry, if he signs as you'll recall back in the Investor day.
And so we built that up nicely.
Okay very helpful and you guys are going to love this one.
But.
What would you say to investors that had hoped you would update the six dollar full capital deployment target on the conference call you held back in March.
Yes, we do love that question, Sean Thanks, very much.
No.
I mean I think.
There is a bit of misinterpretation and perhaps we didn't do a good enough job of interest but.
Ultimately.
If you look at our core performance without deployment.
The $4 50, Mark and I think that's an amazing story in its own right.
And obviously as the share price because youre looking at buybacks, it's harder to just do the simple math, but if you if you end up with.
With the M&A coming.
Coming in.
Then.
We certainly can bus through the $6, but but I think we have to.
Just look at the core business because of the timing of M&A and things like that is always difficult to predict and so so without without we can we can certainly do more than $6 through time.
But I think we should all get back to normative numbers and nicely think more around what we do with our deployment and not sort of.
$4 to some deployment $4 50, very easily so so I think I think.
Allison is talking point not me, saying, we said 475 with 50% deployment, but that's all that's all.
And our model on share prices.
So I think that ultimately can we do better than six doors of course, we can.
But I think I think the market needs to look at is the fact that our performance and our growth.
Looking at what we've put through is at the top of our peer group I believe.
And.
We should not get distracted away from that growth story, and when you start to layer on.
Inorganic growth of household goods.
It's an absolutely unique story.
The differentiation that comes through from our international portfolio and the STS volume drivers.
<unk>.
People will keep getting wrapped up on the on the <unk>.
Upper end of that number, but but ultimately I think the core the core characteristics of our business and the growth drivers and our performance to date proving our growth story are all in line. So so so thank you for the question Sean I don't know if I answer that for you.
But certainly we feel we feel really good about where we sit in terms of the growth of the business.
Okay Fair enough Stuart I appreciate you hanging in with me on that one I'll turn it over there.
Okay.
And finally, we have a question from Gautam Khanna of Cowen. Please go ahead.
Hey, good morning, guys.
Hi, Gautam.
How are you doing.
Doing well doing well.
Couple of questions and forgive me if you answered the first one already <unk> revenues in Q1.
How much.
Yes.
They will come through at about $250 million or something again as expected by the end of Q b in the queue.
But I think ex contingent say I think the answer to that question was 6% organic growth target for Ges.
Understood Okay.
Secondly, I'm curious about.
In the past you've given like a funnel if you will on.
Bids outstanding and what have you just.
Where does that stand right now at Ges.
Do you think we're going to see kind of a big uptick in bookings forget the transcon went for a second.
Forget the massive recompete, but outside of stuff you've already won.
In terms of adjudication in calendar Q2, and calendar Q3, do we see a big surge coming on the government side.
Yes.
I mean, you would I mean logic would dictate that is correct.
There's been quite a bit of.
Delayed due to the CR positions.
I guess just.
People start to get people in the office and things like that but but ultimately that has unlocked the budgets in place I think obviously, what's happening in the world today.
You would expect that there would be an uptick in bookings and really awards as we move as we move through the course of the year. So so I think the answer is yes.
We did I did trying to give you a little bit of that in my sort of prepared remarks.
Although we didn't do the slide on it I think what we did was we gave the backlog in each of the segments and so when you. When you start to look at that for $18 5 billion with the options, but I also said the proposals that were just circa $7 billion in prep, but more importantly, I think the 8 billion.
Awaiting award.
And that is quite high.
And I think we and we've talked a little bit about NASA.
Perhaps looking like with that gives them award, perhaps that's the start of that cycle.
Got quite we've got quite a few billion dollars with NASA, but it's across the Dod.
Portfolio.
Of course, the NASA portfolio. So so the number is high we do expect.
I'll reaffirm that very little Recompete is obviously for the rest of the ESI and we weren't as additive. So so I think I'd say as well for that but you are right. The cadence of awards logically should come through but.
That's not to say that.
Things, we want to fight.
So.
But that's the that's.
Kind of where we sit.
Okay. That's very helpful and then just.
I am curious about cash deployment and just balance sheet utilization.
Would you actually consider larger deals that may actually require some equity component or is that kind of off the table just look at things that can pay for in cash.
Okay.
I mean I think.
I mean things have to do something like that I mean, we would have to be very transformational.
Think that where we are prudent Bayern of improvement so in the past, we don't we don't get caught up in deal fever.
We are very very straightforward on electric.
<unk> dilution metrics, so so I do I do.
You never want to take anything off the table or anything on the table in a way, but but ultimately gautam I think that for us it would have to be.
And an area that was absolutely Bang on strategy I think that we would have to convince ourselves on those strategic vectors on the attractiveness of that market for the future, but also that didn't overlap with what we do today.
<unk> talked often about the fact that I think part of our success is our focus on people.
And we when you bring businesses in that don't have overlap you can look after all of the people.
Not really sort of be thinking about people thinking, but I think our job tomorrow theyre looking at what they can do more extra responsibility and job security and things is important and that's.
It allowed us to focus on revenue synergy, which is obviously a far more attractive solution. So so.
I wouldn't discount any any potential acquisition would have to fit those criteria if that makes sense.
Absolutely and last one again forgive me if you said this in your opening remarks a.
A little late to the call.
What is your expectation for the Logcap programs. This year in terms of revenue year over year, because we mentioned the 100 extra million of bookings in.
Related to Poland, but I'm, just curious like what is <unk>.
We aggregated into all sort of what does Europe European command incrementally year to year.
How does that compare to OLED logcap year to year. Thank you.
I mean.
I'll take a stab at this one I think that.
Actually I looked at this last night.
Even with the uptick in <unk> com.
Given what is happening in the CSR.
We may not achieve the level of revenues, we had in 2020 from the collective of Logcap.
Which demonstrates how we re pivoted.
Our business to other other areas so successfully through all of the things we've talked about so.
Hey days of the Iraq contribution.
We won't get there.
<unk> of course, which was very special but northern command continues to be it's basically ramped up in fairly steady.
Absent.
Extraordinary events, which can always happen, but thats steady where you would expect it to be.
European demand is of course, having.
Having some increased activity today, and it's very difficult to predict.
How big and how long that will last it's fairly.
Modest through through.
Through year to date.
It's not a major game.
Game changer, like OTW was or.
Or some of our past logcap activities, but it's vitally important to the mission.
As is always the case and they're doing a great job.
<unk> there so I think all in as we see with that business from time to time.
Spurts, but this year, if theres a little this year feels a little bit more.
Normative.
Absent the finish of the tail of <unk> in Q1, which is now done.
Thanks, guys I appreciate it yes excellent. Thank you.
We have no further questions.
So I'll turn the call back Louise Brady for final remarks.
As always thank you very much for your interest in taking this morning, I'll just close by saying look I think we're really off to a fantastic start in the year.
Hopefully the answers to the questions of test that and we're feeling very excited about where the business is I think our people do an amazing job.
I think our businesses are very well positioned to take advantage of significant tailwind across our market base on across our whole international portfolio. So so more to come obviously and with enhanced capital deployment Optionality that is never a bad thing also.
We continue.
We will continue to update you as we progress so thank you very much.
This concludes today's call. Thank you for joining.
Your line will now be disconnected.