KBR, Inc.

Hello all and a warm welcome to the Q1 2022 KBR Inc. Earnings Conference Call. My name is Lydia and I'll be your operator today. If you'd like to ask a question at the end of the presentation, you may do so by pressing star followed by the number one on your telephone keypad. It's my pleasure to now hand you over to our host today, Alison Vasquez. Please go ahead when you're ready.

Good morning and thank you for attending KBR's first quarter 2022 earnings call. Joining me are Stuart Brady, 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 questions. Today's earnings presentation is available on the investor section of our website at KVR.com. This discussion includes forward-looking statements reflecting KVR'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, as discussed in our most recent Form 10-K, also 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 you know, we always kick off with a focus on ESG, and today is no different. But it is special and something we are extremely proud of in our partnership, of course, with NASA. For two decades, NASA has been developing and, of course, has recently launched and deployed the James Webb Telescope. This is an incredible engineering feat with a multitude of first-of-a-kinds and has culminated in delivering an opportunity to look and explore the universe in a way we have not been able to, well, up until now. NASA was supported by a number of industry players and I'm proud to highlight that KBR played an integral role throughout the design, the build, test, launch and commissioning of this amazing program, NASA's largest science mission ever. In addition, KBR was recognized by NASA in a very, very special way in being awarded the Exceptional Bravery Medal. The bravery medal is not a small thing. In fact, it's a big deal and it's not often awarded. In fact, the last time it was awarded was actually in 2005. And we're very, very proud to be recognized for implementing a robust safety program for the James Webb Project, ensuring safety of personnel and hardware. Cited for, and I quote, bravery demonstrated to protect and preserve human life, and vital flight hardware during the agency's ambitious and perilous journey to unlock the mysteries of the universe. So just think complex lifts, cryovacuum testing, preservation of assets, investments, personnel, and safety throughout the development, the testing, the launch, the flight, and through things like hurricanes and pandemics, etc. This was not only integral to the success of this landmark mission, But as you know, it's a core part and integral to KBR's culture and values. So once again, doing what we said we would do. So now on to slide six and some quarter highlights. Once more, we saw growth across all our key metrics with frankly outstanding, consistent delivery in each business line. Revenue was up 17%, won 7% over last year. and the resultant adjusted EPS grew 29% at the group level. This is a consequence of increased revenue in primarily the GS segment coupled with outstanding operational performance across all our businesses due to our amazing people delivering each and every day. Our focus on the mission and overall client success once again delivered strong margins and strong cash conversion. Our bookings in the quarter were $1.2 billion. Please note that this does not include Gizmo, which we plan to book in Q2. And this quarter is typically a slow quarter in government, as I'm sure you're aware, especially given where we are with CR running through to mid-March. Sustainable tech had a very, very strong bookings quarter, even with the headwinds of our exit from Russia. And I think this really demonstrates the resilience of this business as they identified and converted opportunities from across the globe. Earlier this month, we'd resolved the legacy CCP matter, and I'm pleased to report that the initial monies have been received by a joint venture and are expected to result in a cash upside to KBR of circa US dollar 200 million in Q2 and another circa 17 million early next year. This settlement, together with managing our withdrawal from Russia, did result in a mostly non-cash after-tax charge of circa USD 150 million. But it reduced uncertainty, reduced management distraction, reduced legal costs, and of course, it cleans up our balance sheet with expanded capital deployment optionality. So bringing this all together, terrific growth, strong operational performance, that's cash and margin, proven resiliency, delivering attractive bookings in STS, and de-risking by retiring legacy and ongoing issues, and winning our largest re-compete for the year, which was Gizmo, which will be booked in Q2, leaving us with very, very low re-competes in the balance of the year, we are delighted to advise that we will be raising guidance. and more on this later from Mark. Now onto slide seven and the outlook for our government business. The spending priorities have not changed. Defense modernization, space including civil, military, intel and commercial space, cyber, digital and intelligence with an emphasis on emerging technologies. All aligned with where we have positioned the business and as we've presented previously. With recent events, there is of course an uptake across both our defence and intel business, we can't really talk too much about this work, and our readiness and sustainment business, where we support both the US and the European commands for LOCAP and the various pre-positioning missions for equipment. It is of course too early to tell the extent of a longer term enduring mission, but clearly the US and NATO have an increasingly important role to play over the longer term. given the recent Russian aggression. Internationally, the outlook is similar, with heightened activity across all our key sectors. Fraser Nash has come out of the block strongly in the year, posting their largest ever backlog, and our Australian businesses continue to deliver terrific margins and growth. Our GS International business is a real driver of margin enhancement, and as I've said many, many times, a clear differentiator. We've highlighted some key wins on the right. I won't read them all as they've all been announced publicly, but the themes are clear. Prototyping, classified space capabilities, human health and performance, NASA ground systems and satellites, and you can see the sizable long-term Gizmo award at the bottom. Our GS book to bill and what is a seasonally slower quarter, similar to Q1 of last year, so not really a surprise, but an important takeaway is that their GS business has an impressive 90% of the work secured today to deliver our 2022 numbers. A terrific place to be. Now onto slide eight, and we'll talk a little bit about sustainable technology. The outlook here is also terrific. High oil and gas prices coupled with continued sustainability commitments and a need to build additional capacity across commodity supply including ammonia, clean refining products, olefins, and petrochemicals as a consequence of world events is expanding global opportunities for our business. We continue to see owners of aging assets looking to companies like KBR to help them decarbonize and drive efficiency via more data enabled decision making. We have highlighted some recent wins here to demonstrate this. Again, I will not read all the words, as we've also announced these recently, but the themes are again clear. Oliphant's demand at scale, smart maintenance, plastics recycling, green and blue ammonia, hydrogen, etc. The STS book to bill in the quarter was 1.3. Combined with a pivot away from Russia, this really demonstrates the global nature and resiliency of this business. Excluding the de-booking of the Russian work, the book to bill of new work one in the quarter was actually 1.4. Super impressive, and I'm sure you'll agree. And just to reaffirm what we said last month, that despite no longer having the Russian market, the outlook for STS for the year has not changed. On this and the previous slide, we've shown the backlog for each of the businesses. Combined for the group, this stands at $18.5 billion with options. And our pipeline continues to be very, very sizable with line of sight to over $100 billion over the next several years. But importantly, with $7 billion in proposal prep and $8 billion awaiting award. And we continue to see over 150 opportunities at or above $100 million. nicely balanced across the portfolio. So following on from our great year in 2021, momentum continues across all our key businesses with a fantastic start to the year and great visibility going forward, leading, of course, to an increase in guidance. Now over to Mark.