KBR, Inc.

and welcome to the KBR Inc. first quarter 2021 earnings conference call. This call is being recorded. As a reminder, your lines will be in a listen-only mode for the duration of the call. There will be a question and answer session immediately following prepared remarks. You will receive instructions at this time. For opening remarks and introductions, I would now like to turn the call over to Ms. Alison Vasquez. Please go ahead, ma'am.

Good morning and thank you for attending KBR's first quarter 2021 earnings call. Joining us today are Stuart Grady, President and Chief Executive Officer, and Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will provide highlights from the quarter and then open the call for your questions. 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 two. These matters involve risks and uncertainties that could cause our actual results to differ significantly from these forward-looking statements. These risks are discussed in our most recent Form 10-K, available on our website. I will now turn the call over to Stuart.

Thanks, Alison, and many thanks for joining us today. I will start on slide four. Now, you should all be very familiar with our zero harm sustainability program by now and the 10 pillars that sit within it across the ESG spectrum. At our recent investor day, we highlighted that being a good corporate citizen was the floor and not the ceiling at KBR. And I wanted to pull on that thread a little bit more today. The symbiotic relationship between shareholder value and KBR helping our clients achieve their sustainability goals is an absolutely key differentiator for KBR. And we want to build on that just a little on to slide five. Now, KBR has a suite of recycling technologies that enable circular processing and the broader circular economy. At the investor day, Doug introduced Moora's revolutionary hydro PRS technology that closes the loop on the circular plastics economy. This is very exciting in its own right. And this excitement, I think, was compounded with the recent announcement that Dow is also investing and, importantly, committing to offtake. This obviously is a huge endorsement on the sustainability aspects and, of course, a huge endorsement on the technology itself and is an important step forward. But at KBR, we have many recycling technologies, as outlined on the slide. All are proprietary, differentiated, disruptive, and market-leading. Now, we could spend the entire call, and I don't plan to do that, talking about these technologies, but today I'll highlight just one example to give you a flavour, and that's on sustainable fibres. A global retailer from Scandinavia came to us a few years ago to help them solve a big problem, how to recover valuable chemicals and water from what would have been a waste stream at the end of their process to produce man-made fibres. A sustainable technology team applied a proven evaporation and crystallization technology to essentially recover and purify critical ingredients and water such that they can be reintroduced right at the front of the process, closing the loop on the circular processing. And this solution has many benefits, as I'm sure you can appreciate. It reduces processing cost. It saves finite elemental resources and water. And it eliminates a waste stream. So overall, it's great value for the client, obviously for KBR and our shareholders, and of course, the planet. So like you've heard me say before, advancing a client's ESG objectives is core to KBR strategy. And this example is just one of the many that demonstrates that tenet. So onto slide six and some key highlights from the quarter. The key takeaway here is overall revenue, EBITDA margin, adjusted EPS and cash were all in line with full year guidance and actually a little bit above our expectations for Q1. You'll recall that we stated that first half versus second half would be circa 40-60 split at the EPS level. That has now shifted to a circa 45-55 split with a couple of things happening in Q1 that were expected to happen in Q2 and Q3. And this was especially the case in sustainable tech, and Mark will give you some more details on this later. Margins were bang on at the group level with some discrete items, some puts and takes that Mark will cover later within the segments. But to be clear, full year margin guidance at the group and within the individual segments is not changing. And I'll say that again, the Q1 puts and takes did not change full year margin guidance. Pre-cash conversion at over 100% was again strong. And importantly, the team brought in over $1.6 billion in backlog and options during the quarter in high-end, technical, upmarket areas, increasing our total backlog with options to $19.3 billion. More on some of these wins in a moment, but super exciting. So Q1 was a relatively clean quarter at the group level. And so today's presentation, you'll be glad to hear, should be relatively short. as the overall business continued its momentum from 2020 and 2021 guidance remains unchanged. So on to slide seven. The market outlook in GS was dominated by the release of the President's proposed 2022 budgets. The DOD budget was aligned with what we presented at Investor Day, so no surprises there. And KBR was very well positioned opposite national security and DOD strategic priorities. A few of the areas are highlighted on the slide. Artificial intelligence and machine learning, cyber, trusted microelectronics, and directed energy. And you can see on the right-hand side wins that help prove this out. We're especially excited this quarter by the trusted microelectronics win to conduct advanced R&D, prototyping, laboratory testing, and supply chain verification on critical microchips and components. This is really important work done by top-tier scientists and PhDs to ensure major military systems and platforms operate as intended and have not been compromised. We also won new work with the U.S. Space Force Rapid Capabilities Office, or RCO, to support the development and acquisition of new space capabilities and the modernization of the military space infrastructure. Again, this is highly advanced work centered around technical R&D in critical military space domains. Shifting a little bit over to the civil side, the civil space side, the NASA budget request was also released and shows a marked increase and continued support for the return to the moon and beyond. And, of course, increased funding across a range of Fed Civ activities focused, as you would expect initially, on COVID, climate change, an area of differentiation, as you know, for KBR, and social justice. The proposed infrastructure plan was also released and was very R&D heavy, very technology driven and climate focused, lining up well with KBR's R&D capability and technology portfolio. This quarter, we saw some great wins also in the international government business, as you can see on the right-hand side of the slide, both in the UK and in Australia. And there was also good news from a budget perspective in the UK, and this follows on from Australia increasing its defence budget last year. As an aside, Rob Hawkins, whom you met in a GS in Focus Day, and his team in Australia are off to another good start, posting top organic growth rates again at over 30% year-on-year this quarter. And this is a nice example of a great team doing things that matter within a healthy budget environment. One aspect not on the slide but worth mentioning was the announcement on troop withdrawal from Afghanistan. As most of you are aware, we took a very conservative view in this area, which has proven to be prudent. So in short, no red flags coming from recent announcements, no red flags from the budget priorities. In fact, very much aligned to what we presented in investor day, so very much aligned with our expectations. The market and our strategic positioning reaffirm our ongoing momentum. Now onto slide eight, unsustainable technology. The market and key strategic themes shown on the slide continue to gather momentum. It's a hot market. The recent announcements from the Biden administration are fully aligned with these themes, as we discussed at Investor Day. Our suite of technologies remains in high demand, and I'm also pleased to announce a disruptive PDH technology, K-Pro, that was actually launched last year and has secured its first commercial scale order. This is terrific. There are details on this on the right-hand side of the slide, but to put it simply, this technology takes low-value propane and converts it into high-value propylene. And it does so in a more sustainable and more cost-effective manner than the competition. It is worth noting that the book to build of heritage technology was 1.5 in the quarter. led by important sales of exciting new disruptive technologies, K-PRO, K-COT, and K-SAT. Bookings of these technologies dominated the tech book to build as clients looked to meet growing demand for properly and high-value clean refining solutions with a disruptive, differentiated, and in our view, often superior technologies. Now, we've talked a lot about KSAT technology in the past, and obviously I've just covered KPro, but I'd be remiss if I did not touch on KCOT and the KCOT win in the quarter, which was a substantial booking by the team. Now, KCOT is KBR's catalytic olefins technology. It is the only, and I'll repeat, only technology of its kind in the market. Now, this technology is unique in that it produces meaningfully higher volumes of propylene versus competing technologies. And as you know, propylene is in very, very high demand. Additionally, KCOT is the only commercially proven continuous operating process on the market, which means that both CAPEX and OPEX costs are substantially lower today. and the energy consumption and thus environmental impact are also greatly reduced. So in other words, it's highly monetizable at lower investment and operating costs, translating to a higher ROI for our clients and at the same time advancing their sustainability agenda. Altogether, very compelling. So staying on the right-hand side of the slide, As you would expect, the cadence of awards in our energy transition advisory business also increased and is a great early indicator of activity in that market. There is clearly a step change in this activity and the cadence of new opportunities and awards has actually been above our expectation. Technology-led industrial solutions also had a fantastic start to the year and the pipeline for our digital solutions that leverages our IP and our domain expertise and helps our customers reduce cost, enhance throughput, increasing efficiency while also advancing their own sustainability goals is resonating. As Mark will show you in a moment, sustainable technology has come out the gate strong in Q1 And we remain confident in delivering a 21 guide that they will be a business that do circa a billion in revenue, likely a bit more, and with EBITDA margins in the mid-teens. It's a high-end government business with a sustainable tech kicker. So on to slide nine and the pipeline. In Q1, we had some really nice wins in strategic areas, as we just touched on. So really following through on winning the right work. The stats on the right you will be familiar with. You know, the stellar recompete win rate, the balanced portfolio of opportunities over a billion dollars, and multiple sizable opportunities over $100 million, showing both the overall scale of opportunity but also minimal concentration risk. The team has done a nice job across the customer set, booking over $1.6 billion in awards and options in the quarter, a pleasing result in a typically light bookings quarter. The key message here is that with recent budget announcements, we expect to see our pipeline remain robust, and the momentum we have is expected to continue. Now, I remind you, we have a low recompete year in 2021 and in 2022, and you can probably see why we're so bullish on the outlook. Now, when we announced guidance in late February, we stated that we had already secured over 70% of the work required to deliver the 2021 plan. In Q1, we had excellent execution, especially in sustainable technology. And this combined with Q1 bookings has driven the level of secured revenue closer to 80%. So in short, the markets and budgets remain very favorable. We continue to deliver well. And on that, I'd just like to give a big shout out to our people who do an incredible job and do things that really matter. We are winning work in the differentiated areas we set out to do. Our ESG commitment and direct link to shareholder value is super exciting and compelling. And Q1 was a great start to what is shaping up to be a great 2021 and beyond. And now I'll hand over to Mark, who will give you some more color on the segments. Mark.