Q3 2024 KBR Inc Earnings Call
Good morning, everyone and welcome to Kbr's third quarter 2024 earnings Conference call. My name is Emily and I'll be coordinating your call today.
After the presentation, there will be the opportunity for you to ask any questions, which you can do so by pressing star followed by the number one on your telephone keypad.
Speaker Change: I will now turn the call over to our host Jamie do you play Vice President of Investor Relations. Please go ahead Jamie.
Speaker Change: Okay.
Jamie Do: Thank you Emily good morning, and welcome to Kbr's third quarter of fiscal 'twenty 'twenty four earnings call.
Jamie Do: Joining me are Stuart <unk>, President and Chief Executive Officer, as well as Mark Sopp, Executive Vice President and Chief Financial Officer, Stuart and Mark will provide highlights from the quarter and then open the call for your questions.
Jamie Do: 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.
Jamie Do: 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 available on our website.
Jamie Do: This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors a.
Jamie Do: A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation I will now turn the call over to Stuart.
Thank you, Jamie and welcome to our third quarter earnings presentation, I would like to start on slide four if I may.
Stuart: We show. This every earnings presentation. So no surprise that lays out our zero harm program on the pillars, both environmental and social the underpinned that program now the progress we've made in each of these pillars as highlighted in our annual sustainability report, which takes me nicely on to slide <unk>.
Jamie Do: Five.
Jamie Do: So this month, we issued our 2023 sustainability report.
Jamie Do: The team does an amazing job and showcasing all that we're doing across these pillars.
Jamie Do: We've shown only a few highlights on the slide here and I'll pick up on a few of our health and safety performance was once again top quintile, they really demonstrating our commitment to really looking after our people.
37%, 37% of KBR group 23 revenue actually over $2 $5 billion is directly linked to sustainability and I think that shows clear alignment with shareholder value.
Jamie Do: Which we've talked about before is a clear differentiator for KBR.
The results from our people survey, which is run by an independent company on done anonymously resulted in KBR being classified as a great place to work in multiple countries. The survey showed US a couple of things I think the <unk>.
Jamie Do: Our focus on people is truly making a difference and secondly of course, we are not perfect and we still have work to do.
Jamie Do: On the funding side of the slide you will see a continued commitment to strong governance and we continue to make progress in advancing our agenda on multiple fronts.
Jamie Do: Our maturity and commitment and delivery of sustainability, that's been externally scored by various agencies and you've seen that before in MSCI. We believe is the most cited and we're of course delighted to have achieved for the second consecutive year at the very highest ranking of Tripoli.
Unknown Executive: As I said, these are only a few highlights, and I would encourage you, if you have time, to have a look at the field document, which is on our website.
Jamie Do: As I said these are only a few highlights and I would encourage you. If you have time to have a look at the field document which is on our website.
Stuart J. B. Bradie: Now on to slide six and the group financial highlights for the quarter. This was another clean quarter and frankly another set of terrific, inconsistent results. Group revenue was up double digit at 10% year on year. Adjusted EBITDA increased 18% 1.8% over the same period. I think once again demonstrating the focus discipline to deliver on our strategy. To winning the right work and then executing with excellence with prudent course management. And this has resulted, as you would expect, in enhanced margins, which were up 70 bits. Cash was once again a standout with year-to-date conversion at 129% and absolutely spectacular performance.
Jamie Do: Now on to slide six.
Jamie Do: On the financial highlights for the quarter.
Jamie Do: This was another clean quarter and frankly, another set of terrific and consistent results.
Jamie Do: Group revenue was up double digit at 10% year on year, adjusted EBITDA increased 18%, one 8% over the same period.
Jamie Do: Once again, demonstrating the focus discipline to deliver on our strategy.
Jamie Do: To winning the right work and then executing with excellence with prudent cost management and this has resulted as you would expect and enhance margins, which were up 70 bps.
Jamie Do: <unk> was once again, a standout with year to date conversion at 129% on absolutely spectacular performance.
Jamie Do: Now onto book to Bill as you know we've been providing a book to Bill figure ex the Plaquemines project for the last several quarters to convey underlying business performance without the large LNG bar.
Stuart Bradie: Now on to book to bill. Now, as you know, we've been providing a book-to-bill figure. X the Platinumons project for the last several quarters to convey underlying business performance without the large LNG burn. And beginning this quarter, we will switch to only using this bigger in our materials, especially in light of the new GV with technique, which I'll cover in a moment. On this basis, I'm really pleased to report that our book to bill at the group level was 1.2x in the quarter, and both SDS and in GS, in particular, had a strong quarter. And this sets us up well to close out the year.
Jamie Do: And beginning this quarter, we will switch to only using this figure in our materials, especially in light of the new JV with technique, which I'll cover in a moment.
Jamie Do: On this basis I'm really pleased to report that our book to Bill at the group level was one two X in the quarter in both SCS and <unk> in particular.
Jamie Do: Strong quarter, and this sets us up well to close out the year.
Stuart J. B. Bradie: But this, together with our respective pipeline, really gives the group a solid foundation heading into 25 and increases confidence to achieve our industry-leading long-term targets.
Jamie Do: But this together with our attractive pipeline really gives us a solid foundation heading into 2005 and increased confidence to achieve our industry, leading long term loan.
Jamie Do: Our long term targets.
Jamie Do: At this point I would like to publicly recognize and thank our people all across the world who continue to deliver every day doing what they are.
Stuart Bradie: At this point, I would like to publicly recognize and thank our people all across the world who continue to deliver every day, doing what that truly matters. And without them, these results would not be possible.
Jamie Do: Truly marches without these results would not be possible.
Jamie Do: Now as you're also aware we closed on the Lincoln acquisition and I'm pleased to report that the integration is well underway and the expected alignment and values and culture are shining through.
Stuart J. B. Bradie: Now, as you're also aware, we closed on the LNG acquisition, and I'm pleased to report that the integration is well underway, and the expected alignment and values and culture are shining through. We've had numerous town hall meetings with LNG employees all over the country, and we could not be more pleased with their warm reception to KBR. Their deep domain expertise, really outstanding technical capability, and their dedication to serve the mission of the customer, which is 100% aligned with how we operate, doing things that matter.
Jamie Do: We've had numerous town hall meetings with Lincoln employees, all over the country and we could not be more pleased with the warm reception to KBR.
Jamie Do: Deep domain expertise really outstanding technical capability and the dedication to serve the mission of the customer.
Jamie Do: Is 100% aligned with how we operate doing things that matter.
Stuart Bradie: Lastly, I'm pleased to report that we will be increasing our guidance for revenue, adjusted EBITDA, and adjusted EPS this year to reflect the addition of LNG and our ongoing organic strong performance.
Jamie Do: Lastly, I am pleased to report that we will be increasing our guidance for revenue adjusted EBITDA and adjusted EPS. This year to reflect the addition of linked quest and our ongoing organic strong performance.
Stuart J. B. Bradie: Now on to slide seven and some key awards. Let me start with SDS and Saudi Arabia. Now there's been quite a bit of speculation on this, and we're now in a position to talk about a role on the liquid technical project for a RAMCO LTC. As we've discussed previously, there was an opportunity across multiple world-scale projects. For elephant crackers, we're initially tended as pre front end design, front end design, and PMC project management contract. A solid relationship with Transcom continues to be collaborative, and we look forward to progressively ramping up on the program and enhancing the moving experience for a men and women in uniform and their families through 25 and beyond.
Jamie Do: Now onto slide seven and some key awards.
Jamie Do: Let me start with STS and Saudi Arabia.
Jamie Do: There's been quite a bit of speculation on this and we're now in a position to talk about our role on the liquid to chemicals project for Aramco LTC.
Jamie Do: We've discussed previously there was an opportunity across multiple world scale projects for olefin crackers were initially tendered as pre front end design front.
Jamie Do: Front end design and PMC project management contracts.
Jamie Do: So there was an overarching coordinating project management contract OFC PMC.
Jamie Do: KBR won one of the crackers and the overarching CPM C. And this was actually the maximum any single company could win.
The Cracker project that KBR secured two competing aramco priorities, what's actually suspended and this has been made public.
Jamie Do: That said the <unk>. We believe is the key role this is a multi year endeavor employing critical resources.
Jamie Do: Covering not only touching all of the olefins projects at all stages.
Jamie Do: But also developing and working the integrated schedule supply chain management strategy.
Jamie Do: And digital management phosphor, Aramco really managing data in a digitalized way and.
Jamie Do: And really sort of looking at.
Jamie Do: Continuity of safety safety systems, and the data digitalization of those safety systems and be the project wide technical authority.
Jamie Do: To be clear, we will have teams embedded in each of the pre feed feed PC PMC contractors during the other large projects on <unk> behalf.
Jamie Do: Now this will ramp up progressively through the rest of this year and into 2025 and as a matter of fact will continue well beyond our long term targets to.
Jamie Do: To give you a feel revenue through the pre feed will be between $50 million to $100 million.
Jamie Do: Im going through feed it into execution revenue will be several times this magnitude so quite significant.
Jamie Do: In addition, again with Aramco, we have also secured another of the offshore gas development front end designs. This is a third to date.
Key enablers for the LTC program itself. This is another substantial and important piece of work again, setting us up well for 2025 <unk>.
Jamie Do: Significant contribution to our long term targets.
Jamie Do: I would remind you that around core are replacing crude by gas with gas sorry to generate power and.
Jamie Do: And the crude will then go via the LTC LTC program into various petrochemicals.
Jamie Do: This is both value add for the crude but reduces the carbon footprint of energy production in the kingdom significantly.
Jamie Do: So now let me turn to LNG again quite a bit of speculation.
Jamie Do: On this market so firstly on <unk>.
Jamie Do: We expect first LNG before year end this will be one of the industry benchmark for speed to market.
A further LNG will be will be produced as the individual smaller trades commission progressively through 2025 and into 2026.
In the quarter, we secured the Lake Charles project in joint venture with technique.
Jamie Do: This is a partner with what was successfully many times to have strong construction and fabrication capability and the customer is energy transfer.
Jamie Do: To be clear the contract the contract terms are firmly aligned with our stated risk profile and KBR will be performing management and technical services similar to a rule on plaquemines.
Jamie Do: And again similar to <unk> this will be reported through equity and earnings.
Jamie Do: Energy transfer is making solid progress and off takes.
Jamie Do: And has the balance sheet to move the project through to final investment decision in fact, they've actually placed long lead orders already.
Jamie Do: Said theres a bit more wood to chop on this and I think the election will have an impact on timing.
Jamie Do: We do not expect.
Jamie Do: Until the second half of 2025.
Speaker Change: In addition, and also in the LNG market and this quarter, we secured the front end design for an additional LNG train for a confidential LNG producers in the middle East, which could lead to stable.
Speaker Change: Statements as that project progresses.
Speaker Change: And also in LNG, we secured the project management contract the PMC foreign behalf of add milk, the Amit Abu Dhabi National oil company for the New LNG project.
Speaker Change: <unk> to.
Speaker Change: To be clear this is for the execution phase. So again this is multi year and valued at circa $138 million and this follows on from our successful PMC of the front end design that we completed earlier in the year and.
Speaker Change: And finally, we just announced the award of the Shell <unk> gas project in Trinidad and this is an enabler for LNG in that part of the world.
Speaker Change: As we've said previously LNG as a global business that truly affords KBR attractive opportunities align with our desired risk profile and leveraging our differentiated capability.
Speaker Change: Now, let me shift a little bit to emerging technology areas.
Speaker Change: We announced our acquisition of sustainable aviation fuel technology early in 2024.
Speaker Change: Since then we have digitalized, a modularized attack, while ensuring we can deliver an end to end solution.
Speaker Change: This solution now trademarked as pure SaaS as the first ASTM certified SaaS technology.
Speaker Change: And we're particularly excited for what's to come as we have noted an intersection of increased demand supportive legislation across the world and progressive incentives and the project, we announced with Athena is the first and an exciting pipeline of opportunities and obviously more to come through 2000.
Speaker Change: 25.
Speaker Change: On circularity.
And in particular related to our investment in mirror and hydro PRT plastics recycling technology.
Speaker Change: I personally visited the site in the UK at Wilton and saw the progress firsthand recently commit.
Speaker Change: Commissioning is well advanced and although progress was impacted by skilled labor shortages due predominantly to Brexit the plant will be producing product before year end.
Speaker Change: The LG chemicals plant in Korea, our first modular solution is on the same timetable on the Mitsubishi plant in Japan, Japan is looking to produce product in early 2025.
Speaker Change: So in the world of New technology, having the fastest scaled plant is absolutely terrific, but three operating at scale plants is actually the watershed and we believe this will catalyze new license and project partnership opportunities in 2025 and beyond so again very very exciting.
Speaker Change: STS book to Bill was one <unk> in the quarter, but I'd say this does not include the large LNG.
Speaker Change: LNG PMC I referred to earlier that was signed a few days after quarter close and move it.
In Q4.
Speaker Change: And are with us and what's in the Hopper, we expect Q4 to be a strong strong booking quarter for Sts.
Speaker Change: Now onto government solutions.
Speaker Change: In the U S. As expected Q3 was a strong bookings quarter due to department of defense annual budget cycles. However, our international business also had a great quarter and together achieving one three <unk> for the quarter and one one on a trailing months 12 months.
Speaker Change: <unk>.
And some highlights this quarter were nine awards and a systems engineering business via the.
Speaker Change: Contract vehicles, we've talked talked about many times.
Speaker Change: Actually this year, we have been awarded approximately one $5 billion in task orders under that contract $1 2 billion of which were actually in Q3.
Speaker Change: As you are aware, we only backlog that's funded and the one point to one this quarter as the ceiling value of those combined contracts.
Speaker Change: Which we will expect to book and burn overtime.
Speaker Change: So one significant contract worth highlighting contained within that $1 2 billion reflects the increased attention focus and funding expected for the Pacific.
Speaker Change: With a circa $200 million multi year contract supporting the Naval warfare Center specific program, which is actually a new digital customer for KBR, where we will play a significant role in introducing and testing new technology as we progressed, the digital transformation and zero trust environment for that.
Speaker Change: Customer.
Speaker Change: In space as you know a key strategic vector for KBR, We continued momentum with our follow on strategic award by the Naval Research lab as shown on the slide.
Speaker Change: The acquisition of link, which was made to accelerate our growth in military space Inter Operability and digital engineering and in the months. Since we've closed linquist has secured over $60 million of new orders under a unique contract vehicle that KBR does not currently.
Speaker Change: Utilize.
Speaker Change: Linquist actually does not utilize Max so with KBR Enlink was now able to use each other's contract vehicles. The revenue synergy opportunities are exciting because the procurement cycles for these very very quick.
Speaker Change: Now before I move on I would be remiss, if I did not give you a wholesale update the systems testing for the Interstate moves was successful and moves have started this.
Speaker Change: This is very significant is a significant milestone as it clears the way for essentially full domestic moves.
Speaker Change: While we expect to see an increase in moves in Q4 as new laser turned on revenue for the full year 2024 will be below our expectation.
Speaker Change: To be clear there is no impact to profit because as you are aware we were conservative.
Speaker Change: In our original guide for 2024.
Speaker Change: And as a matter of fact, our long term targets also contain a conservative ramp as presented at Investor day. So the lower volume in 24 has no impact at all to our targets.
Speaker Change: A solid relationship with <unk> continues to be collaborative and we look forward to progressively ramping up on the program and enhancing the moving experience for our men and women in uniform and their families through 'twenty five and beyond.
Stuart Bradie: I will now hand over to Mark, who will take you through the QC performance in a bit more detail, including the 2024 guidance increase.
Speaker Change: I will now hand over to Mark who will take you through the Q3 performance in a bit more detail.
Speaker Change: The 2024 guidance increase Mark.
Mark W. Sopp: Mark, terrific, thank you, Stuart, and good day, everyone. I'll pick it up on slide 9. So, as you've heard from Stuart already, the results for Q3 were really good across the board, with every single metric you see here up double digits over last year. Mark is in cash flow where the particular highlights with profitability running consistently in the mid 11% range all year and cash flow super strong at 422 million on a year-to-date basis. DSOs, they sales outstanding continued to run at the lowest levels we have ever seen at KBR, averaging about 60 days through this year so far, and as you know, low DSOs reflect high customer satisfaction and also, importantly, superb teamwork across our operations, our functions, and customer touch points.
Terrific. Thank you Stuart and good day, everyone I'll pick it up on slide nine.
Mark Sopp: So as you've heard from Stuart already the results for Q3 were really good across the board with every single metric you see here up double digits over last year.
Mark Sopp: Margins and cash flow were the particular highlights with profitability running consistently in the mid 11% range all year and cash flow Super strong at $422 million on a year to date basis.
Mark Sopp: Dsos days sales outstanding continue to run at the lowest levels, we have ever seen a KBR averaging about 60 days through this year so far.
Mark Sopp: And as you know low dsos reflect high customer satisfaction and also importantly, superb teamwork across our operations, our functions and customer touch points.
Mark Sopp: Let me just quickly go onto slide 10 on results of the segments.
Mark W. Sopp: Let me just see a quick go on to slide 10 on results of the segments. Over on the left, as you see, STS is humming along with continued good momentum and superb profit growth, consistently above 20% margin level. As I said before, this team does a remarkable job delivering intellectual property capabilities to customers all around the world, while continuing to grow its services platform, also a very attractive overall margins. This is attributed to specialized domain expertise, scarce skill sets, and a very cost-competitive delivery mechanism.
Over on the left as you see STS is humming along with continued good momentum in Super profit growth consistently above the 20% margin level.
Mark Sopp: As I said before this team does a remarkable job delivering intellectual property capabilities to customers all around the world while continuing to grow it services platform also at very attractive overall margins.
Mark Sopp: This is attributed to specialized domain expertise scarce skill sets in a very cost competitive delivery mechanism.
On the right government solutions had an excellent quarter as well with revenues up 11% and profit up 14% on improved margins.
Mark W. Sopp: On the right, government solutions had an excellent quarter as well, with revenues up 11% and profit up 14% on improved margins. A particular importance we saw increased award decisions in the less, many of which came on our favorites, Stuart said, after experiencing delays in the first half. Our win rate on award decisions was well over 50%; so it's really a testament to the great team effort there. And that Stuart said, the government booked a bill was 1.3x in the quarter, all the while international glue had an impressive 13% with contribution from the UK, Australia and the Middle East, which well-demonstrates our expanding global reach.
Speaker Change: Particular importance, we saw increased award decisions in the U S. Many of which came in our favor as Stuart said.
Speaker Change: After experiencing delays in the first half.
Speaker Change: Our win rate on award decisions was well over 50%. So it's really a testament to the great team effort there.
Speaker Change: And as Stuart said, the government book to Bill was one <unk> in the quarter all the while international grew at an impressive 13% with contribution from the UK Australia.
Speaker Change: And the middle East, which well demonstrates our expanding global reach.
Speaker Change: On to slide 11 and capital matters.
Mark Sopp: On to slide 11 and capital matters, as said earlier, cash flow generation has been outstanding, which enabled de-leveraging in September, coming off of the Linkless acquisition which closed in August. So just stepping back, it is terrific to have made such a sizable and high-quality acquisition, like Linguist, plus deploy about a quarter of a billion in buybacks and dividends year-to-date, and still have a leverage ratio well south of three times. This underscores the power of our how are you?
Speaker Change: As said earlier, our cash flow generation has been outstanding which enabled deleveraging in September coming off of the Lincoln acquisition, which closed in August.
Speaker Change: So just stepping back is terrific to have made such a sizable and high quality acquisition like link list plus deploy about a quarter of a $1 billion in buybacks and dividends year to date and still have a leverage ratio well south of three times.
Speaker Change: This underscores the power of our EBITDA growth and also cash generation.
Speaker Change: It's worth noting we received a credit upgrade attendant with the link plus deal with all agencies now at double B plus rating equivalents.
Speaker Change: Together with the quality of the acquisition.
Speaker Change: We lowered the borrowing rate on both the new debt associated with the deal and existing debt.
Speaker Change: Added committed liquidity and pushed out maturities.
Speaker Change: These actions will help contain interest cost and also enable more deployment options.
Speaker Change: We go down the road.
Speaker Change: All forms of capital deployment spanning M&A buybacks and debt reduction deliver benefits to us so well balanced doing those based on what generates and our view of the most attractive long term value for our shareholders.
Speaker Change: Now I'll finish up with slide 12, and our forward view of guidance.
Speaker Change: The link was contribution for 2024 is consistent with the information we provided in the acquisition announcement.
We are moderately increasing the revenue guide to two seven.
Speaker Change: Where.
Speaker Change: We have modest moderately increasing the revenue guide to seven 5 billion to $7 7 billion, reflecting four months of linked quest in this year's results and also reflecting lower top line contribution from home safe that Stuart just mentioned.
Speaker Change: On the profit side with strong year to date results and adding linked quest, we're increasing our adjusted EBITDA guidance range to $840 million to $870 million.
Speaker Change: For EPS, the net effect of the linked list EBITDA contribution and also the incremental interest.
Speaker Change: That stems from that transaction enables a moderate increase to the adjusted EPS guide raising the floor to a range of $3 22.
Speaker Change: To $3 30.
Speaker Change: As I said cash flow generation has been strong all year and because the EPS bump is modest with four months of linked list activity. We're sticking with the original cash flow range of $460 million to $480 million.
Speaker Change: So to wrap it up another quarter of a well rounded execution spanning program delivery, winning new work generating cash flow and adding linked <unk> to the team.
Speaker Change: This also enabled us to improve the capital structure for better earnings production and future deployment Optionality as we look to 2025 and beyond.
Speaker Change: Thanks, everyone for tuning in this morning, I will turn it back over to Stuart.
Stuart: Thanks, Marc terrific job as always I will finish up on slide 13, with some key takeaways.
Stuart: So as Mark and myself have said earlier outstanding third quarter performance with double digit year over year growth across all key metrics revenue profit and operating cash flow absolutely terrific.
Stuart: On linguist really performed well since closing thats, one over $60 million of new work.
Stuart: Really delivered solid strong September results, but more importantly integration is progressing really really well and with revenue synergy opportunities crystallizing its a very exciting acquisition indeed.
Stuart: As a result of our strong year to date performance and of course. The addition of linked quest, we're raising guidance as Marc just talked about on revenue adjusted EBITDA and adjusted EPS and.
Stuart: And finally on bookings one two times book to Bill at the group level together with our attractive pipeline sets us up nicely for the remainder of this year of course, but more importantly guest momentum going into 2025. So thank you again for joining us on today's call and ill now pass it back to Emily.
Speaker Change: They will open the call for questions. Thank you.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you would like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad.
Speaker Change: Jay in your mind I would like to be remains from Nicky. Please press star and then K when preparing to ask a question. Please ensure that your microphone is on mute locally.
Speaker Change: Our first question comes from Andy Kaplowitz with Citi.
Andy Kaplowitz: Please go ahead, hey, good morning, everyone.
Speaker Change: Good morning, everyone.
Andy Kaplowitz: Stuart and Mark and I know, it's a bit early to talk.
Andy Kaplowitz: I know, it's a bit early to talk too much about 25, but could you give us a little more color into your visibility, particularly in STS growing in line with that algorithm you gave US earlier this year, the 11% to 15% revenue growth as it looks like as you said you know trailing 12 month book to Bill Reaccelerate a bit in Q3, I know you talked about the strong expected Q4.
Last quarter I think you talked about some delays in energy transition projects are you still seeing those delays and how do you think about the sustainability of the one times book to Bill that you recorded in Q3 moving forward.
Speaker Change: So lots of lots of questions in one there.
Speaker Change: I'm pretty good at leaving them together, let's do it.
Speaker Change: Yes, I would say that.
Speaker Change: It's still quite.
Speaker Change: Obviously started our budgets for next year I think that we are confident that we are aligned with our 11% to 15% growth expectations in STS going into next year, our book to Bill.
Speaker Change: Obviously picked up in Q3 and is looking strong in Q4 to underpin that.
Speaker Change: Margin performance continues to be very strong.
Speaker Change: Energy transition projects, we're seeing more activity in the middle East in particular around market share in the morning, and the guest green hydrogen.
Speaker Change: But I think in general a lot will depend on the election results in terms of the speed in the U S. But overall the energy security market combined with a growing energy transition, albeit probably slower than we expected, but still growing market really gives us good confidence that we will be aligned with what we presented.
Speaker Change: The Investor day in terms of STS target hopefully that helps.
Speaker Change: It does Stewart and then Mark just I wanted to ask you about the guidance just in the context of Quest. Obviously you put in four months, you mentioned that sort of the offset is home safe I guess, if I just look at the sort of guidance raise it seems like is there anything else that's a little slower than you thought I guess because linked quest.
Speaker Change: I think would be pretty sizeable if not more than the EBITDA change in the guidance.
Yes, Thanks, Andy just one clarification.
Speaker Change: Verification. If you will is while home safe as an offset to link quest on revenues.
Speaker Change: We did not really factor in profits for home safe as Stuart said, so that's not a reason.
Speaker Change: Four.
Speaker Change: Are contributing to your question relative to Q4 the guide.
Speaker Change: So that is as expected for the year from a profit perspective at home safe.
Speaker Change: But we do have interest expense coming in for <unk>.
Speaker Change: <unk>. So we have good news is we have three full months of linked questions. We have three full months of interest so we have that.
Speaker Change: Occurring as good a job our treasurer is done with minimizing the impact of that link quest is accretive.
Speaker Change: A couple of pennies. So we didn't think that warranted a big bump we just moved up the midpoint by taking up the floor.
Speaker Change: We do have some seasonality that does kicking kicking in in the fourth quarter, a little bit on things like.
Speaker Change: Just the.
Speaker Change: The efficiency of our labor coming into the fourth quarter with holidays and things like that is a little off pace for parts of government in parts of STS. So we're being conservative on our outlook there.
Speaker Change: And that's about it so not trying to get too fancy.
Speaker Change: We're adding adding some to the guide here, but cautiously so heading into the fourth quarter and really in context capping off a brilliant year of growth on all metrics.
Speaker Change: And doing at or above what we set out to do at the beginning of the year.
Speaker Change: And I think just to finish off on that I think your original question was on EBITDA Guide.
Speaker Change: We think.
Speaker Change: The linguist.
Speaker Change: Revenues about $175 million is coming in at double digits. So it's about a $17 million EBITDA return and that's actually the range that we've put into the announcement on DSO completely consistent.
Speaker Change: Our next question comes from the line of Tobey Sommer with curious Securities JV.
Speaker Change: Please go ahead.
Jasper Bibb: Hey, good morning, everyone. This is Jasper Bibb Cooper Tobey.
Jasper Bibb: It sounds like one of the exciting wins and asked yes.
Jasper Bibb: Just curious like how do you think mix in some of the ones a year recycling ones ramping up by the impact.
Jasper Bibb: The segment margins over the next couple of years, maybe relative to the flattish margin you you outlined at your Investor Day. This spring.
Speaker Change: I think we.
Speaker Change: I think having margins in the circa 20% range with a business that's growing 11% to 15% I think is.
Speaker Change: The targets, we set out the targets, we're going to hold to.
Speaker Change: Maybe obviously mix volatility around margins, mostly going as we've seen we've achieved 'twenty one 'twenty two in certain quarters, depending on mix, but I think our overall guidance stands and our long term targets over time, particularly through to 2007 stock. So I don't think theres going to be much change.
Speaker Change: Thanks, and then one other follow up on home safe.
Speaker Change: Good to hear.
Speaker Change: In fact year targets for a little bit of a totally start there just to clarify so on.
And with.
Speaker Change: I guess underlying 25 assumption for safe revenue from the Investor day or is that maybe a little bit below plan now and that's being offset by other wins across the portfolio of landmarks.
Speaker Change: No it's very much.
Speaker Change: On target as I said in my prepared remarks, we took a quite a conservative view through 'twenty five 'twenty six 'twenty seven in fact in terms of the way the program ramps up.
Speaker Change: Certainly now we've kind of opened the opportunity if you like for the systems testing to typically progressed the domestic moves.
Speaker Change: Think of us any surprise.
Speaker Change: I think there is opportunity to the upside there is a new program whoever but I do feel that we've got the right sort of numbers on a conservative basis within the 25 long term target guide that we gave at Investor day, and obviously more will come out as we guide for 'twenty five in February.
Speaker Change: Our next question comes from Michael Dudas with Vasco Research Michael. Please go ahead.
Michael Dudas: Hello, Jamie Stewart Mark.
Alright, Mike.
Michael Dudas:
Michael Dudas: So with.
Michael Dudas: The positive progress you mentioned.
Michael Dudas: Energy projects.
Speaker Change: The middle East and Saudi in particular, maybe you can share what type of workforce housing being staffed where's it has been maybe in 'twenty four and how that may ramp in 2025, and I assume thats can be used throughout many of you are.
Speaker Change: Offices globally.
Speaker Change: And are you.
Speaker Change: Given some of the opportunities that you have in your current.
Speaker Change: Opportunity.
Speaker Change: Could you see further.
Speaker Change: On contractor.
Speaker Change: Bookings over the next 12 to 18 months in some of these.
Speaker Change: LNG related opportunities there.
Speaker Change: Yes, I mean, that's a really good question Mike.
Speaker Change: So for LTC program.
Speaker Change: It will be light at the Houston office supported by predominantly the Saudi office.
Speaker Change: You can expect as things move into Saudi Arabia.
Work on the gas developments offshore actually led from a leather head office again.
Speaker Change: By Saudi on China in particular.
Speaker Change: The LNG projects that we're looking at are really.
Speaker Change: Again.
Speaker Change: I'd either out of particularly out of Houston.
Speaker Change: But that only and not case supported out of <unk>.
Speaker Change: And I in our India office.
Speaker Change: And so it really is a global impact and allows us to de risk concentration.
Speaker Change: I would also say that in terms of the opportunity when we're doing front end design.
Speaker Change: Let's say the follow on opportunity is clear depending on where you are in the world and I think if it's in the middle east that will likely be maybe broader packages, but really in the project management realm.
Speaker Change: If it's if it's in places that are not in the middle East Theres different contract vehicles that pursue a risk profile, so but in all occasions, I think being involved in the project performing well.
Speaker Change: Often means that you actually have a rule going forward. So that's why we put a lot of emphasis and explain to the market, where we sit and sort of pre front ends concepts in front end designs, because it really positions us not only for.
Speaker Change: For broader rules, but also around understanding technology opportunities and things like that so we'll.
Speaker Change: Hopefully that helps.
Speaker Change: It does Stuart My follow up is you mentioned in your prepared remarks about.
Speaker Change: Some of the energy transition opportunities may be.
More uncertain because of the U S elections, maybe turning to the government side any change into your thoughts on what you've said given your.
Speaker Change: Significant business units and government solutions relative to what Youre seeing out of the Pentagon or what anticipated change could occur and you're seeing that would cause.
Speaker Change: Any.
Speaker Change: And even minor change your thoughts given how things may it looks like to turn out.
Speaker Change: No I don't think materially Mike I think the strong bipartisan support.
Speaker Change: <unk> military spending and the department of defense budgets as we've seen in the past.
I think the.
Speaker Change: The areas, where we've positioned the business whether that be in military space or in.
Speaker Change: In the Pacific on looking at the hypersonic, so cyber are evens civil space with NASA.
Speaker Change: Be strongly supported regardless of how the elections come out so we're feeling we're feeling pretty good.
Speaker Change: Usually a question on what happens in Europe.
Speaker Change: But we feel that thats.
Speaker Change: Moving more to will move more to a sustainment type solution, depending on what happens with.
Speaker Change: With with Russia and Ukraine.
Obviously, thats not a near term resolution.
Speaker Change: <unk>, we see but but you never know, but I don't think that's going to be immaterial change in where the priority spending is going to be in.
Speaker Change: We will guide appropriately as we go into 'twenty, five and we're pretty confident of our targets of growth that we presented on Investor day.
Speaker Change: The next question comes from Steven Fisher with UBS.
Speaker Change: Please go ahead Steven.
Steven Fisher: Alright, Thanks, a lot.
Steven Fisher: So Stuart.
Steven Fisher: You mentioned potential election impact on Lake Charles I'm, just curious what are some of the scenarios that could play out with that project based on the election.
Steven Fisher: And kind of what was the timing implications be for for those various scenarios and I don't want to put words in your mouth, but.
Steven Fisher: It sounded like.
Speaker Change: The answer to Andy's question was that.
Speaker Change: In the event that Lake Charles as say delayed by a longer period of time say a couple of years do you still think you could have enough work in STS to hit those.
Speaker Change: 11, 15% targets I don't want to put your put words in your mouth, but is clarifying that that's what you're messaging.
Speaker Change: So in terms of the election in LNG as you know there is a pause in LNG projects in the U S.
Speaker Change: If the Democrats remain there is.
Speaker Change: Strong indications that some projects will be released four for going forward as long as they meet certain.
Speaker Change: Environmental hurdles and things like that and we feel that lake Charles is very well placed to be part of that cadre.
Speaker Change: If the Republicans.
Speaker Change: Go forward I think.
I mean, the stated positioning us to is to really go faster.
Speaker Change: And as a consequence of that.
Speaker Change: The project will go faster and that was really my comment there.
Speaker Change: That we gave you in the second half of next year.
Speaker Change: It's probably based on the conservative view it could go quicker.
Speaker Change: Again, there is obviously as I said wood to chop.
Speaker Change: In terms of our ability to.
Speaker Change: Further afield for looking at our pipeline and the way that we will perform I think those absolute credibility in the numbers, we put forward regardless of timing of Lake Charles.
Speaker Change: So it's just.
Speaker Change: We had one particular analyst who raised the fact that it would be difficult and an LNG market to replace what we're doing in <unk> and we've announced board associated LNG projects in one quarter.
Speaker Change: And so I really want to be strong on that point.
Speaker Change: You can see the opportunity set.
Speaker Change: That's been realized in a very short order, so I think theres going to be more opportunity not less.
Speaker Change: Energy demand is not reducing it is increasing particularly in the global side. So so that's really my answer to the question Steven unless Mark do you want to say something further.
Steven Fisher: I think you covered it beautifully well Stuart.
Steven Fisher: Thank you.
Steven Fisher: Okay terrific and then maybe just on the Saudi side, just curious if you have a sense of how fluid.
Steven Fisher: That situation is with their programs. There can we take this now take this PMC contract to the bank.
Steven Fisher: If you will.
Steven Fisher: Or.
Steven Fisher: It's still a change either to the upside or the downside I know youre talking to might do to us about some other opportunities but.
Steven Fisher: I'm just wondering.
Steven Fisher: Is this thing now kind of locked in.
Speaker Change: Well they will make a final investment decision I believe Steve Glenn.
Speaker Change: EPC pricing comes in after the front end designs completed, but obviously were at pre feed and feed and it will take.
Speaker Change: A couple of years to come through that exercise.
Speaker Change: Right now Aramco are committed.
Speaker Change: And so we feel very strongly that this is a.
Speaker Change: A very solid set of bookings, but but we wont break it into backlog until such times as we reached the various milestone gates.
Speaker Change: But it was really to just give you an indication of a rule on LTC.
Speaker Change: Right.
<unk>.
Speaker Change: Is really a very strong capability and we've got a very strong relationship of course, and we've got that broader <unk> role, which actually is bringing a whole set of different skill sets.
Speaker Change: I've never really been delivered under the PMC environment before.
Speaker Change: <unk> was chosen to do that so.
Speaker Change: I think ultimately.
Speaker Change: You should take it as really positive news, we're trying to give you.
Speaker Change: Sense of the scale.
Speaker Change: It's a multiyear program.
Speaker Change: So really underpins our long range targets.
Speaker Change: And you have.
Speaker Change: We're feeling really good about it.
Speaker Change: The next question comes from Jerry Revich with Goldman Sachs.
Speaker Change: Gary Please go ahead.
Jerry Revich: Yes, hi, good morning, everyone.
Jerry Revich: So I'm wondering if we just take it.
Jerry Revich: Yes.
Jerry Revich: If we just take a step back maybe five six years ago. The risk terms on a lot of these LNG projects and other large scale.
Jerry Revich: Projects.
Jerry Revich: Attractive to you folks are now the win rates have been.
Jerry Revich: Really attractive for you folks, including Lake Charles LNG could you just talk about what's changed over that timeframe in terms of <unk>.
Jerry Revich: Industry discipline in.
Jerry Revich: Enabled.
Jerry Revich: Opportunity for you folks have such a high win rate with acceptable and attractive returns for KBR.
Jerry Revich: Yes.
Jerry Revich: I mean, we've been very clear we are not taking lump sum EPC risk and we don't take construction blue collar risk.
Jerry Revich: And we've been very true to that we're not going back to the future. If you like and what we're doing here so.
Jerry Revich: Particularly with the with BG and the success of venture global.
Jerry Revich: First phase on <unk> I think.
Jerry Revich: There are certainly new models that are.
Jerry Revich: New customers new developers are looking at because.
Jerry Revich: Them to carry the contingency and manage the risk directly.
Jerry Revich: And also.
Jerry Revich: <unk> them to be heavily engaged in the decision making.
Jerry Revich: And that doesn't suit our customers, they're still lump sum EPC.
Jerry Revich: Many of them, you'll know about and we are not interested in them whatsoever.
Jerry Revich: So I just I just think the market is realizing there could be a different way it doesn't everyone, but it does create some.
Jerry Revich: Their system.
Jerry Revich: <unk> engaged in the Middle East, where there is a project management contract or front end design with Pmc's, where of course that fits our model very very well.
We will continue to.
Jerry Revich: Chase those types of opportunities, but I think if it.
Jerry Revich: I think that.
Jerry Revich: Two things I think really the I guess the intent of your question is there a market for the risk profile that we have the.
Jerry Revich: Appetite for absolutely and I think we've proven that and secondly are we positioned well enough globally to take advantage of that.
Jerry Revich: And we've demonstrated that.
Couldn't meet all not borne in Q3 in particular is absolutely yes.
Speaker Change: And can I ask on the Heritage Tech pipeline could you just talk about what you expect to book over the next couple of quarters in areas like ammonia in plastic recycling I know there is a.
Pretty strong visibility on the pipeline and when you expect bookings to play out can you just expand on what that looks like over the next couple of quarters.
Speaker Change: Yes, we don't I mean, I think that we are very excited obviously with SaaS and plastics recycling as we start to look at the pipeline of opportunities and where the markets are going for those I think as I said in my prepared remarks, the catalyst for change in terms of active final investment decisions on.
Speaker Change: The dozen or so licenses we've already sold.
Speaker Change: For Hydro PRT is really down to the performance of what happens at Wilton or in Korea or in Japan.
Speaker Change: So I think we'll update the market more on that as we as these start to produce product.
Year end and slightly into 25%. So very excited about that I think the bookings will come later in the year associated that with Jeremy just given the timing.
Speaker Change: But.
Speaker Change: But very very strong pipeline there.
Speaker Change: In terms of ammonia I mean, it continues to be an attractive market.
Speaker Change: The ammonia pricing came down as you know through the course of the year, but theres still a lot of interest in actually moving forward, particularly in the middle east around.
They've got very attractive gas prices.
Speaker Change: Looking at market share.
Speaker Change: There is also growing demand for fertilizers as well as commitment around positioning for hydrogen as they move forward. So I think as we go into 'twenty five we expect to see continued buoyancy in the ammonia market.
Speaker Change: Timing is very difficult to tell.
Speaker Change: But I think the market itself remains very attractive.
Speaker Change: The next question comes from Sanjay Jain with Keybanc capital markets. Please go ahead.
Speaker Change: Yeah.
Sanjay Jain: Hi, good morning.
If I can ask one on the LTC project that you said was suspended their AMCOL if I am called changes its priority is to move more investment to other parts of Asia would you be able to follow them, they're so similar projects.
Speaker Change: I mean, I think I mean, it depends on the contractual structure, but yes of its upfront and design PMC of course, we can and we've got.
Speaker Change: Offices in Asia that could support that depending on where it is.
Speaker Change: I think historically, they've they've done more in China and increasingly looking at India.
Speaker Change: The views topic.
Speaker Change: Really their overseas investment vehicle remember that.
Speaker Change: <unk> owns the majority of <unk> at least 50% if not more.
So.
Speaker Change: So I think yes in theory.
Speaker Change: I don't suspect that's going to happen because I think that as I said the reason I said, what I said in my prepared remarks was that.
Speaker Change: They are looking to decarbonize and the kingdom, they're trying to use gas to produce power, which.
Speaker Change: They've gone crude and the utilization of crude into petrochemicals as value add over time.
Speaker Change: That's where they're pointing the investment dollars. So I don't think it's just an investment in liquid to chemicals globally.
Speaker Change: Those are strategic.
Speaker Change: Our sustainability.
Speaker Change: <unk> in Saudi itself, that's driving these investments.
Got it and.
Speaker Change: I know you've referenced the long term guidance a couple of times, but I.
Pink. This project was in your long term risk adjusted guidance that you gave us at your analyst day.
Speaker Change: I just wanted to know how you're thinking about that long term guidance without this project.
Speaker Change: I'm, sorry, I'm confused.
Speaker Change: You gave us long term guidance rate, which included this LTC project on a risk adjusted basis.
Speaker Change: It does but remember we've got a very prominent role on LTC, which is the coordinating PMC, which I said would be $72 million to $100 million through pre feed on several times that value through execution.
Speaker Change: Which is aligned to our long multiyear projects will vary to a long term target. So so we've got a very prominent role in LTC. That's what I was trying to why I spent quite a bit of time talking through that particular project, but it's been a bit of a black box up to date on.
Speaker Change: I apologize for that but we were not allowed to say anything by the customer but now we can.
Speaker Change: Yeah.
Speaker Change: The next question comes from question corner with TD Cohen.
Speaker Change: Please go ahead.
Speaker Change: Oh, Hey, good morning, guys.
Speaker Change: I was curious.
TD Cohen: On a linked question there was some language in the in the briefing about small business Awards I was curious.
TD Cohen: Do they have a lot of small business set aside work.
TD Cohen: If so can you quantify how much and how that runs through runs off.
Speaker Change: Yes, they don't really have any small business set aside we obviously don't start through the acquisition so.
Speaker Change: It doesn't feature at all Gotham.
Speaker Change: I will just expand the work we referred to as <unk> three.
Speaker Change: So that is not restricted to small business. It reflects.
Speaker Change: Initially it was was perhaps under that set aside type of construct but now it's.
Speaker Change: It's preferential type of contract vehicle that can put money to work quickly. It is fully available to large businesses.
Speaker Change: And it largely has gone on a sole source basis.
Speaker Change: <unk> progress and commercialize.
The technologies that are at play that started off small and have become something bigger. So it's a really attractive type of vehicle for not only linked quest, but part of the <unk> group as well.
Okay. Thank you that's helpful and just last one for me on you may have addressed it I joined late CR.
Speaker Change: Budget CR.
Speaker Change: What is your expectation for bookings over the next couple of quarters. If in fact, let's.
Speaker Change: Let's see our expense.
Speaker Change: Yeah.
Speaker Change: I mean, I think I think.
Speaker Change: We've got enough in flight being taught.
We've got a number on it to have been awarded under protest and we don't talk about them until the protest is resolved and quite sizable so.
Speaker Change: Assuming they come in our favor and you never know of course got under the way the protests go but.
Speaker Change: <unk> bookings will remain pretty strong as a consequence of what's in flight.
Speaker Change: And.
Speaker Change: Obviously there'll be some delays with CR, but we don't expect it to in any way.
Speaker Change: Change what we think we will guide to for next year aligned with our long range targets.
Stuart J. B. Bradie: At this time, we'd have nice air the questions, and so I'll turn the call back to Stuart Brady for final remarks. Thank you, Emily, and thank you again for listening, and thank you for your interest, as always, in KBR. I think another terrific quarter, double digit growth across all key metrics. Really, it's not just revenue; it's actually delivering that revenue integrate a profit within Hans Margin. So really terrific effort by our people all across the world. So yeah, thank you again, and I'm sure we'll be on calls later today, and tomorrow, and through the course of the next little while. So thank you very much.
Speaker Change: At this time, we have no further questions. So I'll turn the call back to Stuart Brady for final remarks.
Stuart Brady: Thank you Emily and thank you again for listening and thank you for your interest as always in KBR I.
Stuart Brady: I think another terrific quarter of double digit growth across all key metrics really start just revenue, it's actually delivering that revenue integrated profit with enhanced margins. So really a terrific effort by our people across the world. So.
Stuart Brady: Yes, Thank you again and I'm sure it will be on calls later today and tomorrow on through the course of the next little while so thank you very much.
Stuart Brady: Okay.
Speaker Change: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
Unknown Executive: Thank you, everyone, for joining us today. This concludes our poll, and you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yeah.