Q2 2025 KBR Inc Earnings Call
Good morning, and thank you for attending KBR's second quarter 2025 earnings conference call. My name is Megan, and I'll be your moderator for today.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to turn the call over to Jamie dubri VP of ir with KBR. Please go ahead.
Thank you. Good morning and welcome to kbr's second quarter, fiscal 2025 earnings call. Joining me are Stuart, Brady president and chief executive officer and Mark sop Executive Vice, President and Chief Financial Officer.
Steward and Mark will provide highlights from the quarter and then open the call for your question.
Today's earnings presentation is available on the investor section of our website at kbr.com this discussion includes forward-looking statements reflecting kbr's views about future events and their potential impact on performance as outlined on slide 2.
These matters involve risks and uncertainties that could cause actual results to differ significantly from these. Forward-looking statements are discussed in our most recent Form 10-K, available on our website.
This discussion also includes non-gaap Financial measures with a company believed to be useful metrics for investors.
At reconciliation. And these non-gaap measures to the nearest Gap. Measure is included, at the end of our earnings presentation. Beginning this quarter for the current period and all prior periods. We are reporting results on a continuing operations basis, with the impact of the wind down of home, safe Alliance JV, reported as discontinued operations. Unless otherwise noted, the information presented here in reflects continuing operations only
referred a note 17 in our form, Tim Q for full details on discontinued operations,
Cluster modeling and Analysis. We have provided, an updated data sheet, which recasts.
Historical results on a continuing operations basis. This schedule is available on our Investor Relations website and via the QR code shown in the appendix.
With that, I will now turn the call over to Stuart.
Thanks, Jamie. And good morning everyone. I will pick up on slide 4.
Today as with all meetings at KBR, I'm starting off with a zero harm moment.
The safety excellence awards are given each year to contractors or subcontractors with excellent safety records and an asset owner site.
The award helps companies learn from each other by sharing safety ideas and best practices.
Joint venture 1 of the top award for large contractors.
A brown root, GV continues to perform really well and has actually grown more than 30% for Co.
We don't often talk about the value, add we bring to our unconsolidated GVS but I think this is a great example of slowdown world-class programs delivering top quintile performance, really good stuff.
Now, on to slide 5 and some key messages.
now, before we begin, I want to address the recent and unexpected, termination of our home safe Alliance joint venture contract by us, transform
Importantly, the company and our people put in a tremendous effort into this transformational program.
We are, of course, disappointed with this outcome. And while we wish our prospective had been more fully considered we acknowledge, they were operational challenges.
We are committed to learning from this experience. This allows us to refocus our energy on our core business of MTS, and our strategic vision is unchanged; KBR remains strong in our markets with that. Now, on to our Q2 performance.
First we delivered solid performance on the top line with revenues of 2 billion dollars. And strong, bottom line performance, with adjusted Eva of 242 million.
We generated an adjusted evida margin of 12.4% up 7070 basis points year-over-year.
In volatile times a strong focus on both bottom line. And cache performance is extremely important.
This includes cost management and delivering with excellence to improve margin performance. Overall, this focus really delivered for us in Q2, and of course, here today.
Second, we continue to successfully execute a growth strategy through customer centricity and focus on key. Geographic markets, 1 of which is the Middle East.
In addition with the details of the reconciliation Act of 2025. Now available today we will share how we are poised for growth in key defense areas.
Third, we continue to demonstrate, consistent discipline, Capital, allocation with continued, sharing purchases and active management of Leverage.
Next, we are adjusting our previously. Provided 2025 guidance, to remove home safe and to address the impacts. We've seen from DOD defunding a programs and delayed protest resolutions
the good news is there's no change to a profit and cash flow Outlook and we are confident some of the business will be restored or replaced in the out years as the new Administration, settles and incremental funding under the recently passed reconciliation, act starts to flow
As home safe also had considerable Revenue embodied in our long-term targets, its appropriate to remove those from expectations Mark will be going into more detail on all of this later.
Finally, we remain committed to creating shareholder value.
Moving into this year.
We reduced our organizational complexity by collapsing, what was the international government portfolio? Moving the appropriate business elements into what is now Mission Tech and sustainable, Tech to deliver greater alignment Synergy and efficiency. We are prioritizing Pursuits and MTS to be commercially rigorous and aligned with the spending priorities in the new defense budget.
And expand geographical reach and STS as markets adjust to the new normal.
This is intentional to enable strategic optionality for us to execute on opportunities, to maximize shareholder value.
Today, both MTS and SDS are delivering strong, bottom line numbers.
The pipeline and bids are waiting. Award are at record levels and we are optimistic. That conversions are forthcoming. We are committed to making both businesses stronger on a combined or a standalone basis on to slide 6.
I will highlight a few of our recent wins.
Starting with MTS.
We were awarded a subcontract with the Strategic Resources to expand our Psychological Health Services to aid Army training.
And the continued momentum with the Air Force, research lab customer by winning, multiple strategic contracts, under the Innovative, cyber infrastructure, threat assessment environment, which is called Inc. Insight
Finally, we were awarded the log cap, 5, contract extension through to 2030 for both, Yukon and northcom.
Moving on to the STS segment.
We recently won a large award for a wealth scale, ammonia and urea complex.
The client remains confidential. However this 1 is significant as it demonstrates, the commercial value of our integrated services and proprietary Technologies. And we are looking to apply this on several other ammonia projects in our pipeline.
Similarly, we want to feed contract for the car electrical power production called KET in Iraq, based on the KBR proprietary ammonia. Technology also
We were selected by BP for both detailed engineering and procurement services for the largest oil and gas terminal in as of the Jan.
And for the Sudanese, gas project also in a aaban.
We are the partner of choice because we have local capabilities that are truly differentiated.
Finally, you may have seen that Mitsubishi chemicals. And any us announced the opening of the Plastics recycling plant in Japan, this past month, which uses the exclusively licensed, Hydro, PRT technology from KBR
At the group level, we ended the quarter with a 1.0 PTM boot to Bill and 21.6 billion dollars in backlog and options.
Flight 7.
This quarter. I wanted to provide a little bit more color on our Pipeline and the award Cadence we are seeing in both segments.
In MTS, we currently have 19 billion dollars in bids awaiting award.
Of which 72%, 72% represent new business.
This includes significant contributions from National Security space National Intelligence tests and evaluation and other US Government priorities.
As mentioned last quarter, we still have 2 billion dollars in contracts that have been awarded to us as the winning bidder which remain under protest.
The extended delays have contributed to revenue, shortfalls this year and Mark will touch on this later.
Encouragingly, we have seen recent success in our new business acquisition efforts. The win rates, for the first half of 2025 are up compared to the first half of 2024.
Demonstrating that prior investments in BD are yielding positive results.
In addition, we expect to increase our bits of metals by 30% in 2025.
and this underpins our confidence to continue growth within MTS, When government operations stabilize
This being said, the Government Contracting environment is changing quickly, particularly in the US.
More funds have been directed towards national security, with improved speed of delivery of advanced capability to the warfighter, and cost-effectiveness being driven hard by the new administration.
I'll cover tapping this opportunity shortly.
An SDS, the first half of 2025 presented a dynamic landscape with evolving market conditions.
Shifts in global trade regulatory environments and changes in energy priorities, including a greater focus on affordability and the balance between sustainability and energy access.
And these have influenced project timing and market approaches.
Despite these factors, the business has adapted to New Opportunities. Realigning, priorities to meet the shifting demands of the industry.
SDS continued operations, across multiple energy, vectors.
Delivering projects in established and Emerging Markets.
Results from Q2 reflected ongoing activity in core markets, such as LNG, ammonia and infrastructure.
No significant competitive tenders were lost, but several large awards were deferred due to earlier challenges and are now anticipated in Q3.
10 and opportunities for Q3 and Q4.
We saw approximately 1 billion dollars in potential rewards shift from the first half to the second half of the year.
Bringing the total expected in the second half to more than $1.5 billion.
In conclusion, demand remains strong, but decisions have been delayed.
Thus, we remain confident in both our growth strategies and our execution.
On to slide 8.
We have a 4, Pillar growth strategy, centered on expanding and key markets through delivery and Innovation achieving leading margins and then deploying Capital back to our shareholders.
As you know, the Middle East has been a core geography for us to capture breakout growth as evidenced by the 20% growth in the region on a trailing 12 months basis.
And today, I want to take a deeper dive into this region.
As we discussed earlier.
The Middle East has been busy despite Regional nuances.
While there are priority shifts in Saudi to gas development, including ammonia and infrastructure.
With oil and petrochemical development, a lesser priority.
Sodium sodium through priorities across energy security, energy transition, and infrastructure.
We are seeing an offset in other countries, including Iraq, Kuwait, and the UAE.
Now, these countries are also making Investments to further their strategic policies. For economic diversification leading to increased industrial technology and infrastructure spending and our key focused geographies for us.
KBR represents a well-known and dependable supplier in these markets with reference projects and customers throughout this area.
In Iraq. We have a significant presence in country across civil projects, including working with the ministry of planning directly to support the Strategic direction of the country.
Now, Iraq, aims to ramp up, oil production, and is investing in gas, capture projects, petrochemical, expansions, and clean hydrogen economy initiatives.
Similarly, in Q8, we have a strong presence and we also see a robust pipeline of opportunities.
The country's Vision 2035 includes generating, 15% of its electricity from Renewables by 2030.
and developing up to 25 gigawatts of green hydrogen and ammonia capacity by 2050.
In addition to weight plans, to increase oil output and is expanding gas production, refining capacity and renewable energy initiatives.
And in the UAE KBR has been a trusted partner to add knock for years and manages over 100 billion dollars in capex on Key Programs within adnox portfolio.
Additionally, KBR has recently been awarded the Toca Nexus project to enable expansion of electricity and water distribution to plan data center Investments.
The UAE is investing over 400 billion dollars by 2035 in energy diversification, decarbonization LNG expansion, digital infrastructure, making it a global leader in energy and digital infrastructure Investments.
Our strategy focuses on building customer intimacy, we really understanding client sustainability goals and offering tailored Solutions.
We maximize income to value by boosting local employment, enhancing cleaning and of course developing local talent.
Our differentiators include deep local engagement, strong Partnerships rapid solution deployment and Advanced, Digital capabilities.
This is another example of how KBR's multiple pathways to growth provide an agile, resilient business model.
On to slide 9 our details of next year's. Defense budget requests are now available and the reconciliation act has been approved through the House and Senate, as I'm sure you're well aware.
So, we have line of sight to the first of a $1 trillion defense budget, which is lined up for 2026. This includes an incremental $150 billion in spending for national security priorities, on top of the president's budget request of about $850 billion for baseline defense spending.
Great time to discuss what this means to KBR.
The new Administration, prioritizes efficiency and Mission outcomes of which KBR is directly aligned through a technology, Integrated Solutions and operational Focus, which have differentiated in the market.
Now, starting with the rdt and E wedge of the defense budget, which is well aligned to our defense and Intel business units.
Us space force budget. Including reconciliation is programmed for an incremental Circa 11 billion dollars. Now, that's 35% more than through year 25 levels.
KBR is well positioned to capitalize on this budget increase.
Following our acquisition of linkquest and Centauri and our positions on several existing contracts.
Including ussf specific ID iq's with limited competition.
Golden Dome funding of $25 billion was included in the reconciliation bill.
This program matures programmatically KBR is very well positioned to existing, ussf Army Air Force and intelligence Community contracts.
KB has a long history of engineering support to the missile defense, Agency on platforms, including Patriot, sad army ibcs and various sensors including Over the Horizon radar and low, tier air and missile defense sensors.
Given the urgency of the golden dome timeline. We expect much of this funding to flow, to existing contracts, and vehicles, which we are well placed
such as the iak M. Consider phase 3s.
40 billion dollars of investment. In future weapon systems, create significant opportunity that KBR has already actively positioning to capture.
We have a Strong pedigree of engineering expertise and Technical Support to several programs that are in higher demand. In the new budget, including Patriot missile defense, ltamds centers
South ccs.
KBS intelligence Community portfolio is well positioned for growth. Also with both National and Military Intel budgets at significantly,
moving on to the onm, wedge there is good opportunity here as well, addressable by a Readiness and sustainment business unit.
Geopolitical tensions heighten the need for additional Om spending, and RNs, as you know, have a good position globally. Relative to Om increases going forward, as well as unmatched capabilities in contingency operations for Rapid.
An expeditionary support.
The reconciliation bill provides $16 billion more in funding for Army, Navy, and the U.S. Air Force sustainment.
All customers and areas were taken by currently a strategic portion and market share.
Munition storage and transport are also key funding priorities for this Administration.
And we will be pursuing opportunities here through our leading, digital solutions for Asset Management, optimization and readiness.
I also want to touch briefly on the outlook for the 2026 NASA budget, which is well aligned to a science and space business unit.
Of course, the budget. Today is not yet final, and any impact to KBR will be in 2026. While the presidential budget requests sought a significant NASA budget cut, both the reconciliation bill and Congressional appropriators aim to fund NASA.
Closer to the full year. 2025 enacted levels JB has worked as operational and core to NASA's primary mission.
We fly the ISS we perform space launches.
Spacecraft development and operations, and we build the next generation of space suits.
And we prepare NASA and private astronauts for their missions.
And we fully expect these activities to be supported in the 2026 budget.
Specifically there is 10 billion dollars in the budget reconciliation for NASA aimed at strengthening NASA's National Security missions.
While House and Senate committees are working to preserve funding for key science programs.
This should provide support for our work on the Artemis program, and our ongoing work supporting the ISS out of the Johnson Space Center.
KBR has provided 6 Decades of support to the moon and other space missions.
Significant to the bottom line.
last but not least, we see future growth opportunities with commercial space, and also, with the necessary future expansion of the space launch infrastructure,
Although not related to the US government budget is also important to note the international portfolio within the dni business unit is also well, positioned.
both the UK and Australian governments just came out of post-election strategic planning and are now moving to execute, Sovereign priority Investments That KBR is well, positioned to capitalize on including space Maritime missile defense and Intel domains
We support the ocus program, which remains a key component for indo-pacific, deterrence, and continues to get strong bipartisan support.
We have also just completed a small acquisition taking a strategically into the classified Market in the UK called infrastructure.
On to slide 10. We have intentionally positioned the company effectively to capitalize on these priority funding areas of advanced defense Technologies military space superiority, digital engineering intelligence and Mission cyber security. In line with this strategic Focus, I would like to outline the key objectives for MTS to capture these opportunities to Bringing Advanced capabilities to
The war fighter and in turn further Drive Topline growth and drive margin expansion.
We will strategically realign resources and investment to capture new priority areas. Particularly those incrementally funded by the reconciliation Act,
we are accelerating model based systems engineering and AI solutions to a broader set of government customers.
So, for example,
KBR developed a digital test environment where we're accelerating the development and testing activities for the Air Force's collaborative combat aircraft program across 6 OEM contractors using cutting-edge model-based systems engineering platforms.
So this digital capability will reduce the the development time from decades to just a few years driving greater speed and lower cost of capability to the war fighter.
There are many many broader applications for this type of digital capability and it can be applied to most weapon systems.
In another example, we're using a digital lab in Huntsville, Alabama, to assess digital maturity for Army command and control challenges across integrated missile defense, ground vehicles, aviation platforms, and sensors.
This work includes moving away from traditional manual methods and creating Innovative digital environments that provide faster data.
Driven insights to the customer for improved design, Effectiveness and speed.
We're also strengthening government relations to communicate our agile capabilities to shape new opportunities, top existing contract vehicles, and leverage KBR, Inc., broader commercial acumen.
We're also expanding our presence in high margin International markets, and continue to add scale through a unique combination of technical Consulting and program delivery. And a good example of this is leveraging Fraser, Nash Consulting engagement across the whole nuclear ecosystem and fifth. We are driving operational excellence to enable increased investment in growth and this will include further enhancing shared services and digital enablement for our support functions. We welcome. The administration Center of urgency to accelerate digital and Commercial solutions to improve National Security Effectiveness, which allows to our own business profile and our strategy.
"What’s this? I will now hand over to Mark. Great. Thank you, Stuart. I’ll start on Slide number 12."
So, Stuart just laid out that the first half of 2025 has seen its fair share of challenges.
However, I'm pleased to report our results in Outlook speak to our resiliency in multiple paths to deliver bottom line profits and cash flow.
Revenues in the quarter. Were 2 billion up 6% versus the prior year driven by growth. Across both segments.
Store touched on the reasons for this being lighter than expected, which extends to our Outlook.
Adjusted Diva doll is 242 million up, 12% with margins at 12.4%, an increase of 70 basis, points versus the prior year.
TS with strong performance in all areas.
adjusted EPS was 91 cents in the quarter up, 10%
Reflecting a mix of normative interest and taxes.
With net unfavorable non-op expenses despite the lowered share, count from BuyBacks.
Year to date. Operating cash flow is 308 million. That's up 20% versus the prior year with a conversion rate against net income of 123%.
Now, on the slide to 13 in our segment performance, I'll start with MTS revenue's of 1.4 billion. We're up 7% versus the prior year.
With adjusted debit D of 141 million of 6%.
Margins were 10% flat and in line with our targets.
By business unit, defense and intelligence generated strong growth of 21%. This was due to the linguist acquisition made in Q3 of last year and growth in international business, particularly in Australia, which was up 10%.
Readiness and sustainment, contracted due to a Slowdown in certain activity within the European theater and a pause in some Logistics work, tied to the Army's transformation initiative.
And Science and Space remain consistent with growth opportunities. Currently limited due to uncertain. NASA funding policy so far under the new Administration.
Over to STS revenues of 540 million were up 2% year-over-year, reflecting some softness in new Awards and conversions. So far this year,
Driven by the factors Stuart mentioned earlier.
The good news is that, similar to MTS, STS has built a solid pipeline that we believe is well positioned for conversion once uncertainty settles down.
Adjusted Eva de was 129 million up 17% with margins of 23.9% in STS and Improvement of more than 300 basis points.
The margins, Frank continues to be driven by unconsolidated joint ventures particularly LNG performance. As we continue to unlock value through strong project execution, and excellent production metrics for the client.
We expect to continue progressing on key LG milestones and retiring risk over the course of this year. Next year, and into 2027
Based on our current milestone schedule, we anticipate fairly stable equity and earnings contributions from unconsolidated joint ventures in STS across the first and second half of this year.
And a similar levels in 2026 as well.
So again, pretty flat expected, performance from first, half this year to second half this year and doing that again in 2026, that's a current expectation.
Now that we have covered continuing operations, let me quickly address the line down of home safe.
Details of this discontinued operational provided in our 10 q. But here are some of the main figures
the year to date after tax loss on discontinued operations, which was attributable to KBR was 36 million year to date.
Of this amount losses from operating. The underlying program were about 24 million with remaining 12 million comprised of impairment of assets and Provisions.
Here. Today, cash impact was about 30 million outgoing, of course.
And going forward, we expect some fairly minor trailing expenses with estimated cash outflow for the second half of about 20 million including net, liabilities carried over.
Now, move on to slide, 14, balance sheet, and capital matters.
During the quarter, we did continue to execute our balance to Capital deployment strategy.
We ended the quarter with a net leverage of 2.4 times, down from 2.6 times in the prior quarter.
That's the deleveraging we talked about at the beginning of the year.
During Q2, we returned 70 million of capital to shareholders comprising, 22 million in dividends and 48 million, in share repurchases, bringing total Capital return to shareholders to 245 million year to date, delivering a 3%, reduction in share count so far this year.
Our Capital allocation priorities remain unchanged. Focusing on returning Capital to shareholders while maintaining responsible Leverage.
So with that, let me shift my comments to the balance of the year outlook.
So over to slide 15.
To 9.1 billion as a range to the new range of 7.9 billion to 8.1 billion with a midpoint of 8 billion.
we have provided a walk from our previous Revenue guide, midpoint to our revised guide, midpoint on the right side of this chart, and here I'll cover the components
First, our original guidance was based on assumptions that home safe would provide estimated revenues in the range of 3 to 500 million for 2025. And as such we've removed 400 at the midpoint from our guidance.
Second, our original guidance had also assumed a continuation of the current European command work supporting the Ukraine conflict, which had a run rate of 2 to 400 million per year.
Additionally, we are seeing impacts from the Army transformation initiative. I mentioned earlier.
As they sort out various logistics priorities around the world.
Together, we are reducing Revenue guidance by 250 million for the year for these 2 items.
And lastly, we are moving 250 million of revenue for delays in protest resolution.
Of our various Awards last year. 2 billion in contracts awarded to us remain in an extended protest process.
Our plan for this year included significant Revenue contribution from these and the second half of this year.
And as they are still in protest with no affirmative date of resolution. We are removing them from our guide.
Typically new winds would offer some offset to these types of unexpected. Reductions, however, despite the buildup of bids awaiting decision, we're at the point in the year, where conversion of awards to revenue, including likely further, protests delays may be difficult to achieve
Our guide assumes these opportunities shift to 2026.
Importantly, and has been indicated on prior calls. We did not factor in profit contribution from home safe, in our original guidance this year.
Also the margins on our yuck, Ukraine support and the logistics programs Frozen are very low.
At the same time the profit contribution from other areas in KBR are either on or above track, providing an equivalent offset.
Accordingly, the reduction in our Revenue Outlook does not impact our adjusted ebit da Outlook.
Below the line items were a little high in Q2 as I said earlier, but they are normative on the year to date basis.
As with our adjusted Evita Outlook, there is no change to our adjusted EPS outlook for the year.
But with the first half behind us, we are narrowing the range on both adjusted EBITDA and EPS metrics, with the midpoint remaining unchanged upward. Cash flows were healthy for the first half, with no change to the bottom line expectations. Our cash flow guide of $500 million to $550 million for this year is unchanged.
With the removal of home safe. We're also updating our capex guidance.
To take out about 20 million. Bringing our expected capex for the year to be between 30 and 40 million for continuing operations.
All of the key assumptions in our guidance are unchanged, including tax depreciation and interest expense.
Now, a shift to our long-term targets for 2027, on slide 16.
These targets include a meaningful contribution from home safe. So it's appropriate to address those impacts today.
starting with Revenue, we previously gave a Consolidated Target of 11.5 billion plus, and a segment growth compounded, annual growth rate of 11 to 15% for both segments,
The MTS segment growth kagar is being restored to the pre home. Safe range of 5 to 8% and the STS segment growth kegger remains intact at 11 to 15%.
We're setting the 2027 target to over $9 billion in revenues, in terms of value.
These targets do include contributions from the linguist acquisition we made last year.
Despite recent Market disruptions in Government, Contracting, Global commitment to National Security spending remains strong.
With incremental funding from the reconciliation Act and the factors. Discussed earlier, we believe the 5 to 8% growth targets for MTS are still achievable
Crows worldwide.
For profitability, our goal for 2027 was to provide 1.15 billion of ibadan and adjusted basis.
and as you can see, this year, we're guiding a midpoint of just under 1 billion
With these growth assumptions. I've just laid out in ongoing, strong margin delivery, the 1.15 billion of adjusted ibida is within reach for 2027.
For ebal margins, we had expected some dilution in MTS from the home safe program. Hopefully, you'll recall that
with this being removed, our Target is now 10% Plus for MTS.
And we're modifying STS just a tad to say 20% plus going forward in our targets.
Lastly, you are updating the operating cash flow target to $650 million in 2027.
While the iBot target is unchanged, home safe was designed to run on very low DSO, which had a boost to cash flow generation in our previous targets.
So the revised targets. Now, reflect a normative working capital profile for MTS and STS.
In conclusion, we might recall that our previous IBA Target for 2025 was 925 million. Which included some home safe contribution.
Our current 2025 guide is well above that Target.
With no home, safe contribution.
So this provides a good demonstration of our ability to tap multiple Pathways to achieve results from our Global business base with particular focus and execution on profit generation.
With that. I'll turn it back to Stuart.
Thank you, Mark. I'm on slide 17 with some key takeaways.
In closing.
We delivered solid financial performance in the second quarter.
We continue to execute our strategy, increasing our bid volumes and winning new contracts.
We have a balanced and resilient business portfolio, offering multiple Pathways to growth.
We are maintaining a disciplined approach to Capital, allocation, as Mark shared earlier actioning on our share buyback. Authorization and returning Capital to shareholders
we have updated our annual guidance, and importantly, our long-term targets for the impacts of home safe,
We remain committed to creating shareholder value intentionally, enabling future, strategic optionality.
So thank you for joining the call. And with that, we're happy to answer your questions and I'll hand you back to the operator to do. So thank you.
Thank you, if you would like to ask a question, please press star. Followed by 1 on your telephone keypad. If for any reason you would like to retract your question, please press star followed by 2.
Again to ask a question, please press star 1, we do ask that you let me yourself asking, 1 question and 1 follow-up. As a reminder. If you're using a speaker-phone, please remember to pick up your handset before asking your question, we will pause here briefly to allow questions to register.
Our first question will go to the line of Toby summer with truist. Toby, your line is open.
Thank you. I appreciate the the detail, um, in your updated guidance and the the long-term targets as you are putting it together. Um, what were the
The the sort of upside and downside risks, um, factors maybe the the top couple, um, that that you were considering in in kind of setting those numbers.
All right, so wait, uh, yeah, quite a exercise to do in a, in the, in the time frame. So big shout out to the team for putting this together, particularly the long term Outlook.
We of course, like many others are confident of increased conversion of our pipeline. I would say that that's a key factor in the funding that flows from that as the presidential budget, and the reconciliation that that start to take shape and mature.
Uh, and that was really the principle key factor in addition to actually looking at geopolitical movements and, and what's happening across, particularly the Middle East. And I mean, for example, during this quarter, the situation, with Iran caused or posted 2 weeks delay in terms of awards, and and as people were worried, of course, with the, the broader situation spilling over. So,
Really the key fundamental was we were just getting the, uh, understanding where we were positioned. That's why we spent quite a bit of time, uh, in in this descriptive remarks, uh, really sort of trying to strategically educate where we would be positioned in the future. Administration's priorities, as as the funding flows and the assumption, is that funding would flow. And you'll notice that the targets themselves are long-term targets, remove home safe and are really for numbers. So, you know, logically that would mean, you're at the bottom end of the kicker ranges there, uh, which which makes perfect sense. So there's there's, uh, you know, we, I think we've been quite thoughtful of how we positioned those multi targets.
um, my follow-up would be uh, from a
A reputational standpoint, um, related to home safe. And with that, not, not that specific customer, but that setup customers. Um, how do you feel like the company is positioned from a, uh, an ability to to win and retain work. Do you think that your win rates on recomp, Pizza? New business will suffer as a result of the experience?
No, I mean home. Safe was a John vatel. We were a John vatel partner within that environment. Uh,
uh,
But no, we don't, we don't pursue any impact. I think uh, KBR is has got strong emission sets for this customer as we are. We are engaged with them every day and in fact that engagement has increased, uh, as a, as a consequence of how we need to interact with the government today. And we're not seeing any impact.
Thank You, Toby.
Our next question will go to line of Michael dudas with vertical research, Michael, your line is open.
Good morning. Jamie Stewart mark.
Um,
Steuart, uh, looking at sustainable Technologies, uh, you talked about in earlier in your presentation, about the new normal. I just want to, I want to try that The New Normal we talking about.
BBB, big use of Bill, uh, the geopolitics, um,
And and just the sense of how, you know, where you were thinking, maybe a year or 2 ago, where the buck was going, where the markets are, how that you're adjusting to that to allow to maintain this Revenue Target through 2027, and assuming, you know, pretty healthy margins to offset some of the, the the uncertainty on the MTF side. Thank you.
Yes, I think the new normal relates much to as you rightly said, just the geopolitical shifts and and where the markets are ebbing and flowing. And again we tried to provide some color on, I guess the vision uh of where certain countries are going in our positions within them uh which I think is a key differentiator
I think, secondly, is really around the settling down of tariffs and the impact of tariffs to Capital spending. Uh, and and certainly how how that's automatic itself over the medium to, to long term?
But what we're seeing today is really there was a pause because of the the issues in the Middle East but there's also the equalities in in the Middle East as well. Uh, this quarter.
And we are confident that the Cadence of awards will pick up as we move through into Q2 and the fact that there is announced the number of them in July already. Uh, so I think we've got some uh, some basis to make that statement.
Thanks steward.
Thank you.
Our next question was.
Brent seelman with da Davidson Brent, your line is open.
Hey, thank you. Good morning. Um had a question on MTS. I know the the resolution of protest is a is a difficult thing to protect especially timing. But um absent that she we anticipate a more robust second, half, bookings environment than than what you've seen here today.
If if I mean we've talked through quite carefully about the size of our pipeline. Uh, I'm not being at record scales today in the waiting Awards, generally
my expectation is that will also lead into the fourth quarter, whether reconciliation
Yeah, and Brad.
A reason why we were cautious in the conversion.
Outlook for this impacting, this year, I mentioned very specifically, we assume things will, you know, unlock trying to get next year. Uh, there's been a lot of changing government, particularly in the Contracting offices and people had, you know, retired did the left for other reasons. And so, despite the customer engagement at the end user level, uh, sometimes engagements are not even possible at the contractor office level. And so, you know, the decisions coming out, reside on those people, and there's less of them. And so that's why we were prudent in our in our Outlook this year. And you know, eventually we'll we'll figure it out and uh I think we'll get our fair share but I think, uh, timing is is a question mark? Yeah.
Okay, understood. Um, and then sticking within PS and and the context of the targets.
On the new set of targets for 2027.
Um I I guess could you talk a little more specifically about what we would need to see over the course of the next several quarters in support of that range. Presumably maybe a few of these protests or all the protests go your way. NASA isn't too disrupted I'm just trying to get
Get a sense of what we need to see and not see in support of that.
Well, interestingly, when we look at our outlook for this year,
uh, and as we look at the coase going forward, we're actually the coase to achieve our targets, are coming off quite a low base with uh, what's happened in the UK data? So that should that gives us a more confidence in terms of where we're starting from.
In terms of, in terms of our ability to meet those targets, I think just conversion of the pipeline comes back. Exactly to what we said last time around and if we win our fair share of what's in front of us,
And we we, you know, our pipeline continues to grow because the, the bidding environment has not changed significantly. And when you combine that with our ability to bring in a commercial skills, particularly from STS and international government into the changing environment commercially within the US government. I think we stand, uh, we stand very well placed to, to meet the key doesn't move forward and we would not put them forward if we don't think we can meet them.
No, just add that, uh, the reconciliation act puts money to work quite quickly. You know, provided to all the, the, the supports there, as I mentioned, a moment ago, uh, but we're quite concentrated in our business and the rdt and E funding area, which is a healthy recipient as you heard in my, uh, earlier remarks, uh, same with On Em and so our teams are pursuing, uh, more and bigger opportunities.
On some of the very specific initiatives that are high priority Administration, and we think we're quite, they're quite motivated to get that going quickly. We're platform, agnostic. Uh, we can really bring a lot of digital capabilities together. Uh, that's a clear emphasis with our clients. And so, uh, you know, we're we're expecting that to be a successful outlook for us in the 2627 period and well beyond the place. And, and, and lastly, just to pile on a little bit. Is really what's happening internationally? As you see, there's a commitment for for
Defense spending to rise to 5% of GDP across the European Arena by 2035, with with the UK leading, the charge their somewhat but also in Australia and we're seeing that coming through in the growth, uh, that we are, uh, that we are experiencing in international, which, I'll remind you comes with higher margins. And, uh, it's more commercial in nature which suits our DNA
Okay, good. Thank you.
Thank you.
Thank you, Brent.
There are no additional questions, way to get this time. So I will now pass the conference back over to you, Mr. Brady for closing remarks.
Okay, thank you very much.
Just to reiterate. Uh I'll sort of leave you with some key takeaways and thank you again for joining.
we have completed a multi-year transfer transformation, becoming a a leader in in providing, differentiated Innovative and increasingly up Market Services Technologies and Engineering Solutions and we're doing that increasingly at large scale and
Say with a global reach.
And it would be remiss if I didn't say that quality of earnings is something we've talked about many times. This has been and continues to be a key focus area, and you can see that coming through in the bottom line.
As you know, we serve diverse attractive and markets. But importantly, these are aligned We Believe with strong secular growth trends.
Talent that combining deep domain expertise which will be continually increasingly in demand uh certainly with a proprietary Technologies. Uh but as you have seen for my results, not just this quarter. But for the last several years and really in our Outlook, we have an unwavering focus on execution and we specialize in sort of key Technologies, uh, difficult Solutions and solving them for our customers, as well as complex harsh and Mission critical work.
We are excellent Partners. That's very much part of our DNA. I think that's going to be an increasing need into the future. As we look at different solutioning, uh, we are operating in Dynamic teams to solve our customers most complex challenges,
And this has resulted in recurring long-term engagements and, of course, as we said, in respect to Marks, over $21.6 billion in backlogged options.
Our diversification, our asset light model and discipline, Capital, allocations have, and will continue to generate stable predictable, cash flows.
And compelling shareholder returns and we have growth and margin expansion for the plans in Flight that are bearing fruit.
Finally, we remain alert and agile as we need to be in this environment. Uh, we're monitoring the current Dynamic, uh, situations across the world, and taking strategic and proactive Solutions, uh, at at PACE to ensure KBR remains. Well, positioned to deliver for our employees, our customers and, of course, our shareholders. So, thank you very much for joining today's call. And, of course, for your interest in KBR and we look forward to updating you again to next quarter. Thank you.
That concludes today's earnings conference call.
I hope you have a great rest of your day.