KBR, INC. Q3 FY2024 earnings call

• Issued 2023 Sustainability Report, with health and safety performance in top quintile, 37% of 2023 revenue linked to sustainability, classified as a great place to work, and achieved MSCI Triple A ranking. - Financial highlights: Group revenue up 10% year-on-year, adjusted EBITDA up 18%, margins up 70 BPS, cash convergent at 129%. Book-to-bill at group level 1.2x, with STS and GS strong. - LinQuest acquisition integration well underway. - STS secured projects in Saudi Arabia, including a LTC project and offshore gas development Front End Designs. - LNG projects: Plaquemines expected first LNG, Lake Charles JV with Technip, Front End Design for Middle East LNG train, PMC for ADNOC LNG project, and Shell Manatee gas project. - Emerging technology: Acquisition of Sustainable Aviation Field Technology, Mura Hydro-PRT Plastics recycling technology with commissioning progress. - Government Solutions: US bookings strong due to DoD budget cycles, international business also strong, Systems Engineering business awarded ~$1.5B in task orders under IAC MAC Contract Vehicles, significant contract for Naval Warfare Center Pacific program, and space momentum continued. - HomeSafe systems testing successful but 2024 revenue below expectation.

STS showed strong momentum with consistent profit growth above the 20% margin level. Government Solutions had revenues up 11% and profit up 14% with improved margins. Internationally, Government Solutions' business had a great quarter. STS had a book-to-bill of 1.2x in the quarter, with both STS and GS performing strongly. Government Solutions had a book-to-bill of 1.3x in Q3 and 1.1 on a trailing 12 months basis. STS contributed with specialized domain expertise and scarce skill sets, while Government Solutions benefited from US DoD budget cycles and strong international business.

• Moderately increased 2024 revenue guide to $7.5 billion to $7.7 billion, reflecting four months of LinQuest and lower HomeSafe contribution. - Increased adjusted EBITDA guidance range to $840 million to $870 million. - Moderately increased adjusted EPS guide, raising the floor to $3.20 to $3.30. - Stuck with original cash flow range of $460 million to $480 million.

• Election impact on timing of energy projects like Lake Charles. - CR budget extension potentially causing delays in bookings.

Q: Andy Kaplowitz asked about visibility and growth in STS, and delays in energy transition projects.

A: Stuart Bradie said confident in 11%-15% growth, book-to-bill strong in Q4, with energy transition projects seeing activity in the Middle East.

Q: Tobey Sommer inquired about the impact of LNG recycling wins on segment margins.

A: Stuart Bradie said margins in STS continue strong and are aligned with long-term targets.

Q: Michael Dudas asked about workforce staffing for Saudi programs and contractor bookings.

A: Stuart Bradie said there is global impact of Saudi programs and bookings are solid.

Q: Steven Fisher asked about election impact on Lake Charles and the Saudi PMC contract.

A: Stuart Bradie said energy demand is global and the Saudi PMC contract is solid.

Q: Jerry Revich asked about changed risk terms enabling KBR's high win rate.

A: Stuart Bradie said KBR is not taking lump sum EPC risk and new models are attractive.

Q: Sangita Jain asked if KBR could follow Aramco to other Asian projects if their priorities change.

A: Stuart Bradie said KBR can follow in Asia if needed based on contractual structure.

Q: Gautam Khanna asked about the impact of CR budget extension on bookings.

A: Stuart Bradie said bookings are strong with in-flight projects and not expected to significantly change long-term targets.