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spk00: 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.
spk01: 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.
spk09: 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.
spk11: Terrific. Thank you, Stuart. I'll pick it up on slide 10 for the Q1 financial performance summary. As you heard, all key metrics were up significantly, reflecting favorable market conditions and the strong overall business execution that Stuart highlighted moments ago. These factors are the drivers to increasing our guidance, which I'll cover a little later on. Revenues for Q1 were up 17%, driven by our government segment where we saw healthy growth across all four business units. Overall, margins were solid with both segments right on track with their 22 targets, GS at 10%, STS at 16%. Adjusted EPS was up 29% driven by the overall EBITDA growth coupled with modest improvement in non-operating items year over year like FX, interest, and taxes. Cash flow was terrific and right on track with our increased expectations for 2022. Working capital effectiveness improved with overall DSOs reduced. Strong cash flow further strengthens our balance sheet, of course, and as previously announced and as Stuart covered earlier, the ICDIS subcontractor settlement in April will add significantly to our financial capacity as well. On to slide 11 for our segment details. Government continues to roll with year-over-year top-line growth of 25%, 21% being organic, and strong margins at 10%. Defense and Intel was up 8% year over year, all organic, and 11% up from Q4. This team continues to deliver its IDIQ portfolio extremely well and in high advanced technology areas. This includes some of the contracts Stuart mentioned earlier. Science and Space was up 2% organically from last year and also up 10% sequentially from Q4. While new business proposals awaiting award continues to mount in this business unit, Science and Space team has won all of its recent re-competes and is receiving terrific performance scores across its contract base. Readiness and Sustainment was up 62%, all organic, demonstrating the strong franchise we have in this part of the market. Again, Ellis' team is now quite busy supporting theater activities in the European command, plus its wide range of recurring programs around the world. This team is always ready to serve and deliver. International grew 24%, with Fraser Nash and Australia being the main drivers here. The Fraser Nash integration is going very well and their range and depth of advanced capabilities continues to impress us. And Australia is once again at the top of class, posting growth of 17% in the quarter. Margins are solid and as planned across all GS business units, as I said up front. Over to STS, this business is also delivering at a high level. Just stepping back, this team continues to build an attractive book of business and is leveraging its leading market positions as clients double down on sustainable, cleaner, and safer ways to operate. As we've said many times before, this is truly a global business with access to a broad spectrum of the market and with a highly agile sales team. Impressively, despite removing in-flight projects and future opportunities associated with Russia, other opportunities have been harvested and there is no change to the STS financial outlook for this year and beyond. All remains robust. STS revenue ticked down in the quarter due primarily to our intent to exit commercial activities in Russia, which we announced last month, and our previously discussed and announced exit from commoditized services in 2020. In the quarter, this team generated 43 million of EBITDA and 16% margins, reflecting our strategic shift toward higher margin, sustainability enabling, differentiated technologies, and engineering solutions. From a comparative perspective, you'll likely recall we had a program closeout benefit last year in the first quarter, which boost margins by about 3%. So from a comparative perspective, Margins in the STS business are up nicely year over year from 13% to 16%, an outstanding result and consistent with the transformation plan we set out for this business just about a year and a half ago. In summary, both businesses demonstrate a great agility and resilience in the quarter, delivering strong growth, excellent profitability, and very strong cash results. which takes us nicely to liquidity and capital deployment on slide 12. As said earlier, the balance sheet and liquidity position are in terrific shape. In Q1, we upped our dividend by 9%. We continued buybacks, and all the while, leverage downticked to 2.3x EBITDA. The settlement with our former subcontractors on ICDIS occurred in April, and approximately $200 million will be reflected in cash inflows from investing activities in Q2. There's more to come next year, as well as Stuart covered earlier. While this inflow won't affect operating cash flow, it will of course add directly to deployable cash, which of course is the name of the game. On to slide 13. With a strong Q1, 85% of work under contract across the consolidated portfolio, favorable business conditions, and growing deployable capital, we are increasing our full year adjusted EPS guidance to a range of $2.53 to $2.65, a six cent increase over our original guidance at the midpoint. We're also narrowing our revenue, operating cash flow, and adjusted operating cash flow guidance ranges for the year as outlined here. We expect consolidated EBITDA margins of 10% for the full year, with future quarters expanding from Q1. And in terms of timing, we expect 50-50 split in full year EPS cadence between the first half and the second half. Thank you, and I'll now turn it back to Stuart to finish it up.
spk09: Thanks, Mark. Nicely done. Now to summarise. Following a great 2021, we have started 2022 with a bang. Strong growth, double digit growth in revenue and adjusted EPS across all our key metrics with outstanding operational performance, including safety, which is an absolute testament to our great people. A significant de-risking with CCPP and rushing exposure resolution combined, with a cash injection of US dollar 200 million in Q2 plus another 70 million circa in 12 months time. Together with another quarter of excellent cash conversion, this of course results in greater deployment optionality and reduced uncertainty and of course reduced distraction. The market outlook across the portfolio remains highly robust and the associated pipeline of opportunities are attractive, and align with the positive outlook and the RAISE guidance. In short, momentum continues. Thank you, and I will now hand it back to the operator who will open the call for questions.
spk00: Thank you, Stuart. If you'd like to ask a question, please press star followed by one on your telephone keypad now. To withdraw your question, it's star followed by two. We kindly ask that you register one question and one follow-up only. If you have any further questions, please press star 1 again to get back in the queue. Our first question today comes from Toby Sommer of Truist Securities. Your line is open, Toby.
spk12: Thank you. My first question would be, what is the proportion of recompete business remaining for the year and in for calendar 23? Thank you.
spk09: Good morning, Toby. As we said, we've won our largest re-compete of the year with Gizmo. That comes through in Q2, obviously. But we've announced that, and that actually makes our re-compete levels very, very low for the rest of the year. So I don't think anything significant that would derail our story, certainly in this year. And going into next year, there are some larger re-competes for NASA that are coming through. The timing of that is still a little bit questionable. There's quite a backlog in NASA at the moment, quite a bit waiting for a war. But it's quite telling that we won Gizmo and we won it on a best value basis. I don't have the exact percentage of re-competes for next year, Mark. Do you have that?
spk11: We're looking forward, Toby. Yeah, I'm not going to speculate, but I would call it a fairly normative in the government contracting since year. We've had really low re-competes, but very good success rates in the last couple. We're very open about that, but 23, 24 is more normative. And as we get closer to that year, I think we'll give you a better waterfall of that outlook maybe in the second quarter call.
spk09: Yeah, and we'll know more about timing at that time as well. But I think the takeaway for this year is that, you know, very early in the quarter, obviously, we've won the largest we compete. And, you know, most of what we're bidding now is all additive.
spk12: Thank you. And then with respect to funding actions, I'm curious if your customers had a difference and you noted a difference in the calendar first quarter and then, you know, so far in April. after having the budget, was there kind of any kind of notable change, one might imagine improvement?
spk09: Yeah, I think, Toby, I mean, obviously the Gizmo Award was a good sign, but I think it's too early to tell. I think we'll know more as the quarter progresses.
spk12: And lastly, does your... What's your posture now that you have finally put the period at the end of the sentence for ICDIS and all related kinds of work, and you look at M&A, what's the quality like of the pipeline for material kind of additions?
spk09: Well, I mean, clearly, obviously, you know, the excess cash is hugely additive to our optionality, and obviously the cash conversion continues to be strong, so We feel pretty good about the, I guess, the level of deployment we can do. But as you rightly say, it's all about what's in the pipeline today. And I think the world is settling down a little bit, but multiples still tend to be quite high. There's quite a bit in the market. But again, it's all about finding the things that are very complementary to what we do and align with our strategic vector. You know, we're always out looking, you know, acquisitions have been a very core part of our story. And, you know, we're not perfect, of course, but I think we've done them reasonably well and they've been very additive to shareholder value. So I think, you know, more to come probably. But ultimately, you know, I can't give you any details, of course, but there's quite a bit out there. And, you know, I think, you know, we're pretty upbeat as well with Fraser Nash, which we did, you know, obviously the end of last year and they're really performing at the top of the level that we expected and their bookings were, as I said in my prepared remarks, the largest they've ever been in terms of backlog. So again, I think we're very upbeat about the opportunity to do more acquisitively.
spk12: Thank you very much.
spk00: Our next question today comes from Michael Dudas of Vertical Research Partners. Please go ahead.
spk02: Good morning, Allison, Stuart, Mark. Good morning, Michael. First question on STS. As you look through and looking at the prospects in 2022 and beyond, certainly you see a lot in the press and releases about ammonia, hydrogen. You've had a pretty broad base, the winds here lately. What areas do you see over the next several quarters that might be more beneficial or see more activity on your front? And how is the conversion from when customers are starting to discuss early advisory thoughts about what to do in these technologies moving ahead towards implementing final decisions? Does that start to accelerate because of concerns about time to market and policy goals, et cetera? I'd like to get your thoughts on that.
spk09: So, I mean, there's a lot of dynamics at play in that question, Mike. I would say that the terrible war in Ukraine, of course, has changed, I guess, people's outlook in terms of speed to market. You know, there's obviously a constraint in gas, there's a constraint in a lot of ammonia, etc. And we're seeing people accelerate decisions around new developments and especially expansions across that sort of portfolio. So you have that dynamic at play. You are seeing, of course, the whole sustainability and climate change agenda still very, very strong. And again, we're seeing people come to market as decisions obviously impact future energy security. And I think that all that bears well for SDS and the level of activity we've got in that business is enormous. And we're really upbeat about the prospects for SDS. The fact that they pivoted away from Russia this quarter so well and filled the hopper by really pointing what is a very agile sales force into other areas, they've done terrifically well and a big shout out to them because they had to do it quickly. And I think the agility and the resilience of that business is shown through in the numbers and the book to bill. And so I think that market is red hot and it's red hot for a number of factors. I've just described the The high oil and gas prices, of course, also help in terms of, you know, a customer's capital deployment options. So I think, and we're seeing, you know, companies as well starting to look at, you know, aging assets and how best to make them more efficient and how to particularly to drive additional output given the constraints in that market.
spk11: And I'll add just one thing that's specifically encouraging is on hydro PRT. or plastics recycling capabilities, coupled with MIRA. We've completed three. We have a lot of projects in flight right now that are advisory consulting oriented relative to feasibility and implementation. But of the three that were completed, all three have resulted in real projects coming out of those studies. So, you know, still early days on all of that, but really good early signs of conversion rates of advisory to real, highly profitable projects, but also ones that are really impactful to the green future of those clients.
spk02: That's encouraging, Mark. Just a quick follow-up on what you said just at the end, Stuart, about aging assets. And I was intrigued by the contract that you won for the maintenance service, predictive preventive work. in the Middle East. I would think there's probably a big backlog of those types of projects that are ahead, given the lack of spending for this over the last couple of years and what energy companies, chemical companies are trying to do, no?
spk09: No, absolutely. I mean, this is through our technology-led industrial solutions business and very much looking at predictive, preventive, and getting in front of the curve with the customer to drive down their carbon footprint and deliver efficiencies and greater output. And I think the asset base, I mean, that particular facility is in Jubail. And if you've ever seen a picture or been to Jubail, there's a multitude of assets. I mean, it's an enormous industrial base. And we've already started to do work for a sister company of them just down the road. So I think there's an enormous opportunity in that arena. I think that this whole data-driven solution is the way of the future as we get more sophisticated and plant operators really understand how to sweat their asset in a more carbon-friendly way. So I'm really excited about that part of the business and certainly there's a lot of momentum and the Insight product, which is our own IP in terms of how we do remote monitoring, the number of licenses we've sold in the last year is equivalent to what we sold the previous three or four years. And so the momentum around that is terrific.
spk02: So thank you, Stuart, Mark.
spk06: Thanks, Mike.
spk00: Our next question today comes from Brent Thielman of DA Davidson. Brent, your line is open.
spk03: Oh, great. Hey, thank you. Good morning. The readiness and sustainment business, I mean, great comparables here this quarter. I was just curious if there's any remaining OAEW work impacting that, or is this really more a function of other activities around the globe, including operations in Europe?
spk09: Yeah, I mean, that's sort of an expected question around OAEW. There's a bit of a tale that came into this quarter, of course, and that project is essentially complete now. But the way to think about it is ex-contingency, the GS business globally grew circa 6%. Organically. Organically, and I think that's very telling and aligned with our sort of long-range target. So we're very pleased with that. I mean, that business, the R&S business, is obviously benefiting from that. No one likes to benefit from difficult situations, but the fact of the matter is economically... We've got an uptick in activity, both in a defense and intel business that we can't talk too much about, but obviously in the R&S business, from the work we're doing on LogCap, both in the U.S. and in, obviously, European Command, where there's a lot of activity. And we also run, as you're aware, or many of you are aware, the pre-positioned stock contracts in the U.S. to get equipment ready for deployment, and there's an uptick in activity there, as you would expect as well. So, We don't know how that's going to play out through the course of the year. I mean, certainly we don't see any short-term change in that, but is there going to be a longer-term enduring mission as NATO really starts to become... One thing that's really happened here is that NATO's back, isn't it? I mean, I think under the previous administration there was a lot of challenges around NATO, but certainly now the importance of NATO and the relationships across the Allies is front and centre, so know will would will there be an enduring mission you know a betting person would probably say yeah probably uh what scale that is what it looks like we don't know but but certainly there's been quite a bit of uptick in activity around around that as you as you know we previously said and as you would expect okay very good thanks stewart i guess the follow-up would just be uh maybe an update on the non-defense
spk03: sort of related elements of the government solutions business. And I guess, particularly around expectations this year, science and space is growing, and I guess a relatively slower clip this quarter. You've got a stable massive budget. You've got the Gizmo contract. Just curious what your expectations are, maybe through the course of the year in areas outside of defense.
spk09: Yeah, I mean, that business, I mean, it did grow 2% in the quarter, but there's a plethora of things in the pipeline waiting for award. that have been, I guess, waiting for several months now to come through the system. And the fact that Gizmo came through in the way it did, and it was a best value award with no actual protest, which is unusual these days, which is good. And so anything we're bidding there is additive. And there's quite a few billion dollars of work that we're bidding there. So, I mean, if the timing of that, it all happens over the first half of the year, I think you'll see quite a nice uptick in that business if we win our fair share. But again, it's really unknown in terms of timing, so it's tricky to give you any guide there. But we are pretty comfortable with our overall GS growth. We're very comfortable that the combination of the non-defence and the defence will actually meet our expectations through the course of the year. So that's why it's nice having these various elements of business. I think... you know, we're well positioned in all these markets. And I think the combination is the power in this. And I said in my prepared remarks, and I'll say it again, you know, we don't talk about our international portfolio quite enough. I mean, the performance of the UK business and the margins they're delivering is absolutely terrific. And Mark mentioned the growth in Australia as well at 17%. So all up, I mean, the margin enhancement, the growth that comes through from that international business is absolutely terrific. So So I think it all adds in combination, but when you look at science and space, it really comes down to the timing of awards, and we're very pleased now that we've got through our largest re-compete.
spk03: Okay, thanks, all. That's the book.
spk04: Thanks, Bert.
spk00: The next question is from Andy Kaplowitz of Citigroup. Your line is open.
spk07: Good morning, everyone. Morning, Andy. Andy. Stuart and Mark, can you give us more color regarding STS revenue for 22? I think you said in the past that KBR delivered double-digit growth in the segment for the year, and I know, Mark, you said no change to guidance for the year. I think, Stuart, you said the market's red hot. So does revenue growth in the segment accelerate from here, and you should return to revenue growth even in Q2?
spk09: No, absolutely. I think the interesting start, we obviously had to de-book some revenue from Russia, but I think we said we would cross the threshold, if you like, as working off the heritage reimbursable EPCs as we built up the book of business that really is our future. I think that threshold was all but met this quarter, just slightly off, but we're there or thereabouts. The growth coming in the core part of STS is in line with our expectations. you know, our book to bill would prove that out and I think our pipeline would prove that out and I think the outlook in the market would prove that out. So we're very, very happy with that and very excited about it actually and the opportunities that we discussed earlier and Mike's question and including plastics recycling as Mark highlighted. So I think it all bears well for this year and for, you know, the foreseeable future in truth.
spk07: Very helpful. Now maybe related, can you give us more colour into how your business are faring you know given the macro challenges that are out there obviously you already have accounted for kbr's russian exposure but are you seeing any impact on sts from a weaker china or china lockdowns and are you seeing any supply chain issues slowing down projects doesn't seem like that but any color would be helpful no we're not really impacted by the the supply chain issues just given the sort of what that we do and i think the inflationary pressures we've talked about before given a lot of our workers cost reimbursable i think we're
spk09: we're in pretty good shape there. The China market, we do work there in our technology business, of course, but I think just the way that we're seeing more activity in places like North America and the US in particular than we've ever seen, and I don't really have too much concerns about that. We'll be watching it, of course. We're not complacent in any way, shape, or form, but I think the breadth of I mean, it's a global business. I think we've proven that. And hopefully you're comfortable that that statement is absolutely true. And we see opportunities all across the world that we can convert to keep this train running at the speed it's running. So I'm not really concerned about that. I mean, I made very firm statements about our expectation of double-digit growth just in the last question there. And I think that will continue despite lockdowns in China. And I think you'll start to see you know, various countries having flow just because of certain circumstances. But I think the global nature and the resilience of this business is well proven.
spk07: Appreciate it, Stuart.
spk00: Next in the queue, we have Bert Sibben of Stiefel. Your line is open.
spk06: Great. Thank you. And good morning, everyone. Good morning. Good morning, Bert. Welcome. Thank you. So Stuart, or at least I guess in your release, you guys noted that you booked 85% of what you need to hit your guidance for 22. Stuart, I think you said that's now 90%. What do you see as the items that either drive guidance higher or result in you missing on the low end? I imagine you guys are thinking there's upside to what you're putting out there.
spk09: Yeah, we are a conservative bunch. Everyone keeps beating us up about it, but it's better to be that way. I mean, it's 90%. We've got 90% work under contract for GS and 85% overall. And one has to remember that we do have, you know, things that come through that we don't know they're going to come through yet. You know, a small idea queues, you know, on-contract scope growth, a lot of what we do in the consulting arena and, you know, high-end engineering, smaller contracts and things. And that makes up 10% to 15% of our revenue every single year. And so when you add that on to the 85% number, you can understand that we feel pretty good about the coverage for the full year and meeting the guidance, the increased guidance that we've put out. So, you know, with the cadence of awards, if that starts to come through now that the budget is clear, I think that, you know, and given our low recompete position and given our commitment in SDS and the double-digit growth, I think that obviously, you know, we're confident of meeting what we've set out and is there an opportunity of things break on time and things like that to do a bit better? Of course there is.
spk06: Okay. That's helpful. Maybe just on the STS side, when you guys put out your investor day or your investor day release back in 21, I think oil was something in the high fifties today, over a hundred. How much of a tailwind do you expect that to be for STS as you think about your 2025 goals? Obviously you've sort of reaffirmed that guidance. I guess I'm wondering why that wouldn't be more of a tailwind, just given some of the things you guys are doing on the clean energy side.
spk09: Yeah, I mean, usually when you go to market and say that you've got double digit growth with margin expansion at the same time, people are usually quite happy if you can say that at the beginning. But as ever, as the market evolves, you're right, there's fantastic tailwinds in that marketplace. But I think obviously you've got environmental pressure and climate change agenda pressure on the big oil companies. And you're seeing them taking the revenue that they're receiving from these higher oil prices and decarbonizing their assets and looking at ways to diversify their portfolio, which plays nicely into our SDS positioning. So you're right, there's significant tailwinds in that market. But I think at this particular point, I think that it's quite right that we stick by our guidance, the double-digit growth with the You know, the margin expansion that we've put out there, I think that would be, you know, if we achieve that and maybe a little bit more, that would be a terrific outcome. And we will set the bedrock for that to continue into next year and beyond.
spk06: Thanks, Stuart. And I obviously was not trying to belittle anything you guys are doing. It just seems like you have some pretty serious tailwinds there.
spk09: No, no, I totally understand that. Thank you very much.
spk06: Thank you.
spk00: Next in the queue, we have a question from Jamie Cook of Credit Suisse. Please go ahead, Jamie.
spk05: Hi, this is Chigusa Kotoku on for Jamie. Thanks for taking my question. My first question is following up on the R&F question earlier. If growth moderates throughout the year, what would that mean for government margins?
spk11: I'm not sure I heard the first part of the question, but I would say government margins did 10% in Q1. That's on line with target. There's some modest dilution from finishing up OAW embodied in that number. And for that reason, all of the things being equal, we actually expect a modest uptick in margins in GS over the rest of the year. I'm not sure it'll round to a bigger number, but nonetheless, there will be more there in light of that absence of OEW ramp down. And that's positive. Plus, you know, the types of wins we've had in the market conditions do not suggest any deterioration in margins either. So we really feel good about where they're heading, their contract mix. The international piece, of course, always helps, as we've talked about over and over again. So the trend there is good.
spk09: Yeah, and I think that was demonstrated from Q4 last year into this year when OAW was running at its height. I think we're up a quarter of a percent coming into this quarter. And the other piece to layer onto that is just the growth of our international portfolio where the margins are higher and meaningfully so. And as a consequence of that, there's upward pressure on margins also. So Mark's right, we're feeling pretty good about the 10% that we've put out there. And I think that is a solid number to be modeling as we look forward.
spk05: Okay, that's helpful. Thank you. And then as a follow-up, I read in the news that the Global Household Goods Contract is being protested, but if you could, if it impacts your outlook, if you could talk about it, if there are any impacts on your outlook, if any. Thanks.
spk09: Yeah, we always said 22, there'd probably be very little or no impact on household goods, whether this was resolved earlier or later. And when we presented the overall impact to KBR of that contract through time, again, you know, a short delay, six months delay or so, wouldn't really impact our 25 numbers and that holds true. I mean, the current status there is that it's in the Federal Court of Claims having, you know, the protest was obviously denied and resoundingly so, and the other bidders have gone to the Federal Court of Claims as they're right. But they have put out that there's a backstop to that decision at the end of October, so it may come earlier, of course, and it gives us an opportunity to plan further and de-risk as we sort of build up that organisation and do that sort of whole transition. So we're feeling that that all still plays as it was previously presented, and we'll know more as the year progresses, hopefully before Q3, but certainly no later than that.
spk11: So to repeat, no, there never was an expected consequence in 22, and that remains the case. It's a 23 and down story.
spk00: Okay, thank you.
spk06: Thank you.
spk00: Our next question comes from Sean Eastman of KeyBank Capital Markets. Your line is open, Sean.
spk08: Good morning. Coming back to the 90%, backlog coverage in GS for 2022. Could you tell us what that number is for the out years? I don't know if you have that in front of you, maybe for 2024 or 2025?
spk09: Sean, it's a good question. I think we were well over 65%. It depends what you assume for household goods and how that impacts the numerator and denominator and that. But ultimately, I would say it's above 65% today for obvious reasons, particularly with the wins that we've had. I don't have the exact number, but... It's over 70. Over 70% Mark's telling us.
spk11: Okay, that's very helpful. It's not just one year. It's the aggregate revenue production over the course of the five-year period. So we're sitting there at plus 70%.
spk08: today and that's grown nicely you know started at 55 if you'll recall back in the investor day and so we built that up nicely okay very helpful and uh you guys are gonna love this one um but what would you say to investors that had hoped you would update the six dollar full capital deployment target on the conference call you held back in march Yeah, we do love that question, Sean.
spk09: Thanks very much. So, I mean, I think, you know, there's a bit of misinterpretation and perhaps we didn't do a good enough job in truth. But, you know, ultimately, you know, if you look at our core performance, you know, without deployment, we're at, you know, the 450 mark. And I think that's an amazing story in its own right. And obviously, as the share price goes out and you're looking at buybacks, you know, it's harder to just do that simple mass. But if you end up with M&A coming in, then we certainly can bust through the $6. But I think we have to, you know, just look at the core business because the timing of M&A and things like that is always difficult to predict. And so, you know, we can certainly do more than $6 through time, but But I think we should all get back to normative numbers and actually think more around what we do with our deployment and that sort of, you know, four plus dollars to, you know, some deployment 450 very easily. So I think, you know, Alison's talking, pointing at me saying we said 475 with 50% deployment. But that's all, I mean, that's on a model on share price, as you know. So I think that ultimately, can we do better than $6? Of course we can. But I think the market needs to look at the fact that our performance and our growth, looking at what we've put through, is at the top of our peer group, I believe. And we should not get distracted away from that growth story. And when you start to layer on the built-in organic growth of household goods, it's an absolutely unique story. and the differentiation that comes through from our international portfolio and the STS value drivers are sensational. People keep getting wrapped up on the upper end of that number, but ultimately I think the core characteristics of our business and the growth drivers and our performance to date proving out that growth story are all in line. So thank you for the question, Sean. I don't know if I answered it well enough for you, but certainly we feel really good about where we sit in terms of the growth of the business.
spk08: Okay, fair enough, Stuart. I appreciate you hanging in with me on that one. I'll turn it over there.
spk00: And finally, we have a question from Gautam Khanna of Cowen. Please go ahead.
spk10: Hey, good morning, guys.
spk11: Hey, Gotham. Hey, Gotham. How you doing?
spk10: Doing well, doing well. Hey, I have a couple questions, and forgive me if you answered the first one already. OAW revenues in Q1, how much were they?
spk09: Yeah, they will come through. They're about $250 million or something. As expected, it'll be in the queue. Be in the queue. But I think ex contingency, I think the answer to that question was the 6% organic growth. For GS. For GS.
spk10: Okay. Secondly, I'm curious about, you know, in the past you've given like a funnel, if you will, on bids outstanding and what have you. Just where does that stand right now at GS? And do you think we're going to see kind of a big uptick in bookings? Forget the Transcom one for a second and forget the massive recon beat, but outside of stuff you've already won, In terms of adjudications in calendar Q2 and calendar Q3, do we see a big surge coming on the government side?
spk09: I mean, logic would dictate that's correct, Gautam. I mean, there's been quite a bit of delay due to the CR positions and, you know, I guess just, you know, people starting to get people in the office and things like that. But ultimately, you know, that has to unlock now the budgets in place, I think. Obviously, what's happening in the world today would, you know, you would expect that there would be an uptick in bookings and really awards as we move through the course of the year. So I think the answer to that is yes. I did try to give you a little bit of that in my sort of prepared remarks. Although we didn't do the slide on it, I think what we did was that we gave the backlog in each of the segments and so when you when you start to look at that that's 18.5 billion with the options but i also said that in proposals there were just circa 7 billion in prep but more importantly i think there's eight billion dollars awaiting award and you know that that's quite high and and i think you know we and we've talked a little bit about nasa you know now you know perhaps looking like uh with the gizmo award perhaps that's the start of that cycle, and, you know, we've got quite a few billion dollars with NASA, but it's across the DoD portfolio and, of course, the NASA portfolio. So the number is high. We do expect, and I'll reaffirm that, you know, we've got very low re-competes, obviously, for the rest of the year, so then we win as additive. So I think it bears well for that, but you're right. The cadence of awards logically should come through, but, you know, That's not to say that things won't defy logic, as you know. But that's kind of where we sit.
spk10: Okay, that's very helpful. And then just, you know, I'm curious about cash deployment and just balance sheet utilization. So would you guys actually consider larger deals that may actually require some equity component, or is that kind of off the table? You're just looking at things you can pay for in cash and
spk09: I mean, I think, I mean, things have to do something like that. I mean, we'd have to be very transformational. Uh, I think that we are, we are prudent buyer and have been proven. So in the past we don't, we don't get caught up in deal fever and, and we are very, very straightforward on our accretion dilution metrics. So, so I do, I do, you never, you never want to take anything off the table. I put anything on the table in a way, but. But ultimately, Gautam, I think that for us it would have to be in an area that was absolutely bang on strategy. I think that we would have to convince ourselves on those strategic vectors and the attractiveness of that market for the future. But also that it didn't overlap with what we do today. You know, I've talked often about the fact that I think part of our success is our focus on people. And when you bring businesses in that don't have overlap, you can look after all the people. and not really sort of be thinking about people thinking about if they've got a job tomorrow, they're looking about what they can do more, what external responsibility and job security and things is important. And that's allowed us to focus on revenue synergy, which is obviously a far more attractive solution. So I wouldn't discount any potential acquisition, but it would have to fit those criteria, if that makes sense.
spk10: Absolutely. And last one, again, forgive me if you said this in your opening remarks a little late to the call. Just what is your expectation for the log cap programs this year in terms of revenue year over year? Because you mentioned the 100 extra million of bookings related to Poland, but I'm just curious, if we aggregated it all, what is European command incrementally year to year, and how does that compare to all-in log cap year to year? Thank you.
spk11: Yeah. I'll take a stab at this one. I actually looked at this last night. Even with the uptick in UCOM, given what is happening in that theater, we may not achieve the level of revenues we had in 2020 from the collective log cap, which demonstrates how we've re-pivoted our business to other other areas so successfully through all the things we've talked about. So, you know, the big heydays of the Iraq contribution, we won't get there. This is XOEW, of course, which was very special, but Northern Command continues to be, it's basically ramped up and fairly steady, absent extraordinary events, which can always happen, but that's steady where you'd expect it to be. European Command is, of course, having some increased activity today, and it's very difficult to predict how big and how long that will last. It's fairly modest through year to date. It's not a major game changer like OAW was or some of our past log cap activities, but it's vitally important to the mission. as is always the case, and they're doing a great job supporting there. So I think all in, as we see with that business from time to time, there are spurts, but this year feels a little bit more normative, absent the finish of the tale of OEW and Q1, which is now done.
spk10: Thanks, guys. Appreciate it. Yeah, very nice. Thank you.
spk00: We have no further questions in the queue, so I'll turn the call back over to Stuart Brady for final remarks.
spk09: As always, thank you very much for your interest in taking part this morning. I'll just close by saying, look, I think we're really off to a fantastic start in the year, and hopefully the answers to the questions attest that, and we're feeling very excited about where the business is. I think our people do an amazing job, and I think our businesses are very well positioned to take advantage of significant tailwinds across our market base and across our whole international portfolio. So more to come, obviously, and with enhanced capital deployment optionality, that is never a bad thing also. And we will continue to update you as we progress. So thank you very much.
spk00: This concludes today's call. Thank you for joining. Your line will now be disconnected.
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