KBR, Inc.

Good day and welcome to KBR Inc. Third 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 that time. For opening remarks and introductions, I would like to turn the call over to Allison Vasquez, President, Investor Relations. Please go ahead.

Good morning, and thank you for attending KBR's third quarter 2021 earnings call. Joining me today are Stuart Brady, President and Chief Executive Officer, and Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will cover 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 actual results to differ significantly from these forward-looking statements. These risks are discussed in our most recent Form 10K available on our website. I will now turn the call over to Stuart.

Thank you, Alison, and thank you for joining us this morning. I will start on slide five. As some of you may be aware, we released our 2020 sustainability report last week, which highlights our progress and our continued ESG commitment. As such, I thought it would be timely to touch on some of the highlights. So starting on the right-hand side, if we could, I think the commitment to strong leadership and governance is, of course, table stakes today. But I would highlight the progress we have made in diversity at the board, the high degree of independence, and I think the changing mix of capabilities to suit KBR's business today. In the bottom left, we have matured our operating culture aligned with social impact, and there are some good examples listed there. The circles in the bottom in the middle highlight our ongoing carbon neutrality, our net zero 2030 commitment, and the elements of executive reward that are aligned to ESG. Really, all great examples of being a good corporate citizen. But as you know, we believe... And we firmly believe this, that being a good corporate citizen is the floor and not the ceiling. It's really about things like the strategic growth vectors, about advancing the science behind climate change in our work for NOAA and USGS. It's about making net zero a reality for our clients looking to operate more efficiently or to close the circular plastics loop. And it's about bringing commercially viable green energy to market. Really, in sum, it's about our investment in new technologies and capabilities to meet the world's growing demand for real solutions around climate change. And KBR is doing some really pretty incredible work in these areas. And I think the alignment with shareholder value is, I believe, a clear differentiator with 32% of our revenues sustainably focused with strong KGAR's forecast. I encourage you to visit our website to read the comprehensive report. Now on to slide six and the quarter highlights. It's been a fantastic quarter across all metrics, financial, operational, and strategic. Revenue is up 34%. Yes, 34%. And this is a combination of organic and acquisitive growth and the Operation Allied Welcome OEW mission to assist the DoD in looking after the Afghan nationals as they came out of Afghanistan. It's an impressive revenue growth number, especially given the impact of our exit from commoditized services in 2020. EBITDA is up 30%, which is, again, quite an increase. The businesses performed really well across the board, delivering at or above expectations. We hit or exceeded target margins in both our core government and sustainable tech businesses. EPS was up significantly at 45%. Obviously helped by what I just covered, but also with more volume in the U.S. that helped our tax rate also. From a cash perspective, we maintained our discipline and focus and, again, outperformed. The conversion rate in the quarter was 125% or so. That's 110% year-to-date. I think the cash fundamentals of our business model are not only attractive and consistent, they of course give us options. The team landed about 1.6 billion of awards and options in the quarter, a nice combination of some new work and re-competes that I'll touch on shortly. Now, this figure significantly understates the magnitude of the OAW award by almost around about a billion dollars. And Mark will cover more on this later. For now, I'll just say the team continues to win important, highly strategic projects across the growth engines that we laid out at our Future Forward Investor event earlier this year. Cyber, green ammonia, digital solutions, and more. doing important work advancing our client's missions and sustainability objectives. This, of course, provides us the continued momentum and growth towards our 2025 targets, which remain unchanged. As we indicated last quarter, we concluded the settlement with the client on ICSIS, removing complexity and uncertainty and thus enhancing our capital deployment optionality. Our pursuit of the recoveries of the monies associated with the combined cycle power plan are not affected and continues with the arbitration starting next April in 2022. So with all this, we're once more raising guidance for full year 2021, and Mark will walk you through that shortly. All up we must be and we are very pleased with the strength of the delivery and our people's commitment to the mission is inspiring. So a big shout out and a big thank you to them. And onto slide seven. The market and outlook in government remains quite similar to Q2. Of course much of the discussion is on continuing resolution and of course the defense budget. National security priorities, however, remain aligned to KBR strategic positioning, so no real change there. I suspect if the CR continues through Q4, then some new awards will move to the right. However, the OAW work that we're doing and our book-to-bill associated with this should hold up pretty well as we await the expected catch-up in early 2022. Outside the US, we have just closed on Fraser Nash and expect to do well opposite increased spending in the prioritized areas in the UK and in Australia. And more on Fraser Nash in a moment. And an earnings call isn't complete without a tip of the hat to Australia, which continues to grow above the norm and perform amazingly well. We've highlighted three awards on the right. I think the first two speak for themselves. High-end, technically differentiated, future-focused around IT and cyber, and of course, buy-on strategy. The third award listed, actually awards, requires a special mention. This is via LogCap 5, and then again separately direct to the Navy at Quantico. And we've established multiple sites across the U.S. and Europe to deliver a significant humanitarian mission to accommodate the many thousands of displaced Afghans, many of them children. Our people, together with the client, have done and continue to do a Herculean heavy lift to establish critical infrastructure and medical facilities within a massively accelerated timeline. To be clear, KBR is not responsible for screening or security. For us, this is a purely humanitarian mission and one we at KBR are very proud of. A huge shout out again for our people and the significant input from the supply chain to make all this happen. It's likely the task order will be extended, but we shall have more visibility over the next few months. So in short, the market outlook across GS With OAW, the inclusion of Fraser Nash, Australia, and aligned positioning opposite budget priorities for the rest of 21 and moving into 2022 is very positive. Now onto slide eight, and we'll talk about the outlook for sustainable technology. I guess similar to the government outlook in many ways, the outlook from Q2 to Q3 for sustainable tech is very similar, but with one key positive development. The increase in oil, and particularly gas prices, recognizes supply-demand imbalance, particularly as we move into winter. This, of course, delivers increased profits to the oil and gas companies themselves, allowing them to restart capital projects and increase investment in decarbonisation, energy efficiency, changing output mix and in energy transition projects, so very positive development. We see this shift combined with the ongoing demand for sustainable solutions as being key factors increasing demand for our technologies and our services. we continue to see opportunities across ammonia, hydrogen, olefins, clean refining, plastic recycling. There's been a big uptake in this area and in technology-led industrial solutions and a proprietary insight solution. The three awards highlighted here clearly demonstrate these themes. I'd like to highlight the green ammonia project we announced a couple of weeks ago. This really is a cool project for a renewable energy client that combines the client's renewable solar expertise and capabilities with our K green technology to deliver what we think will be the world's first commercial scale green ammonia plant. This facility is expected to be operational in 2022. It's a real project that is moving forward with great momentum and is very, very exciting. I'll take another moment to brag on the team just a little bit. So far in 2021, there have been three commercial-scale ethylene opportunities that have come to market. And you can see one of those project wins highlighted here. But our team is batting 1,000, winning all three of those projects, a great result that I attribute to the customer focus and tenacity of our fantastic people and, of course, the quality of our technology that brings lower CapEx investment, excellent end product flexibility, lower O&M profile, and lower carbon footprint. So the outlook for STS is very positive, and increasing demand is expected as we move into 2022. So this takes us nicely onto slide nine, where you can see if all those positive words are resulting in strong bookings and resulting in a robust pipeline. You can see the scale of our pipeline is indeed robust, with $11 billion in the proposal negotiation phase and lots coming down the pipe. The $1.6 billion of awards and options in the quarter brings our positive outlook and strategic positioning, all that talk into numbers that are very aligned with our overall confidence in the company's growth strategy. Now, we promised we'd give you an update on the amount of work we have in hand and have secured to deliver on our 2021 to 2025 long-range targets. If you recall at our investor day in March 2021, our book of business reflected about 55% coverage across those five years. That revenue curve assumed CAGRs of about 8%. Today, that same book of business coverage number has grown to over 60%, and that excludes the uptake from OAW. As we have said, our strategy is to build stable, predictable businesses in attractive markets with a very capable business development track record. We think the continued progress here is a great demonstration of those attributes. So, bottom line is that we stand behind our 2025 targets. Now, onto slide 10. Last week, we announced the closing of Fraser Nash. Fraser Nash, if you recall, is a high-end advisory and consulting firm delivering systems technology and systems engineering and assurance. The addition of this talented team is an absolute step change in the evolution of KBR's business primarily in the UK and in Australia. It further extends our reach into technically differentiated sectors and supports our mission of delivering high margin, high end technology enabled solutions and mission orientated capabilities. What's more, their compelling clean and renewable energy suite of capabilities perfectly aligns with KBS commitment to ESG principles and to helping our customers accomplish their sustainability objectives. As outlined here, Fraser Nash adds about 160 million of revenue in their government business in 2022 at high team margins and is expected to be approximately 10 sets accretive to adjusted EPS. We couldn't be more pleased to welcome this group into the KBR family. Now I'll hand over to Mark. Mark.