KBR, Inc.

Good morning, ladies and gentlemen. Welcome to the KBR first quarter 2023 earnings conference call. My name is Jaquita. I will be your moderator for today's call. Our lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to your host, Jamie DeRay with KBR. Jamie, please go ahead.

Thank you, Jaquina. Good morning and welcome to KBR's first quarter fiscal year 2023 earnings call. Joining me are Stuart Brady, President and Chief Executive Officer, as well as Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will provide highlights from the year 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, as discussed in our most recent Form 10-K, available on our website. This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors. A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation. I will now turn the call over to Stuart.

Thank you, Jamie, and thanks to you all for taking the time to join us this morning. Now, before we begin our earnings call, I am deeply saddened to inform you that Lieutenant General Vincent Stewart, U.S. Marine Corps, retired. A very distinguished member of our board passed away this past Friday, sadly. Vincent has been a director of the company since June 2021, and on behalf of KBR's board of directors, and all of our employees, we extend our deepest sympathies to Vince's family. I'm personally very saddened by Vince's passing. He was a tremendous support of the company and me personally, and I will always be appreciative of his service and his impact to KBR. Now I'll start today's presentation on slide four. As you know, these are our zero harm pillars, and today I'd like to talk about our annual zero harm day that actually celebrates all of the pillars you see on the slide. So on to slide five. So on February 22nd of this year, KBR employees from all around the world came together to celebrate the company's eighth annual Zero Harm Day. Now, this is an important and a significant day in the life of the company, which we celebrate KBR's outstanding safety performance and our sustainability culture throughout the organization. It's also an opportunity to really recognize our people for their zero harm achievements and their courage to care. Project sites, offices, business groups all around the world had zero harm day events, and there's photographs of that in the slide. And thousands of employees took part in a huge range of activities. And then there were panel discussions on climate change, on mental health. We had community leaders come in and experts come in to talk about you know, topics ranging from personal safety to recycling, to giving back to communities, et cetera. And overall, it was a fantastic day of recognizing our accomplishments, but actually renewing our commitment and refreshing that commitment to a zero harm culture at KBR. And of course, we carry on a zero harm theme actually throughout the whole year, as you know, and recently our impact, our young professionals resource group came together on Earth Day for a day of giving back. And in Houston, they took part in a beach cleanup, actually, in Galveston, partnering the nonprofit Galveston Bay Foundation. So, terrifically well done to those aspiring leaders. So, on to slide six, and we'll just talk a little bit about some key highlights in the quarter and, I guess, the business health of the group in general. Firstly, at the highest level, we've really hit the ground running in 23. Our people continue to perform. It's absolutely outstanding, day in, day out. And I really wish to thank them personally for all that they do, doing things that matter 24-7. So staying on people in the top left, you will see that already this year, our headcount has actually increased by 7%. That's quite a jump, and almost all these roles are billable. Attrition has come down, and it's kind of stabilized at normative levels. which is really helping, and obviously our increased focus on retention and recruitment is paying off. So a big shout out to the folks in the HR function. They have really terrific work. As a services business, the employee numbers are not the only measure of growth, but I think, of course, they're a solid indicator. I did want to highlight in this section today a program that we came across from the Centauri acquisition that we really identified as best practice at the time. And we've now broadened that to the whole of KBR. And this is our tech fellows program. Now this program takes nominations and then identifies and celebrates our leading technical gurus. I mean, I think this of course shows the value that KBR places on technical excellence. I mean, many of those, these fellows are actually world leaders in their field. And I have to say that they're typically absolutely brilliant and excellent mentors to our people coming through. I mean, this also provides a community and a forum to really innovate and to collaborate in sort of key topics that are really very important for our government and the world in general. We give additional budget and, of course, additional time so that they can invest in their chosen passion. So a really, really important program, and I think, again, really highlighting our commitment to technical excellence. Moving to our ESG program, zero harm. I'm pleased to report that our first quarter HSSE performance continues to be top quintile. So terrific. I mean, you can see the numbers there, but remember, as I always say, good safety is good business. So terrific performance. From a shareholder value perspective, in Q1, we were awarded three green ammonia projects. Now, these are different levels of maturity, and I think we've announced each of them separately, but it's nice to see when you put them together, I think it really tells the market story and really our position within it. Obviously, this was on the technology IP side of SDS. On the sustainable services end, we also announced that we've been awarded BP's hydrogen development work. And now with this, we're working in an integrated and collaborative framework with BP, And I think this, through time, will come with pull-through opportunities, think project management, engineering, technical authority, over a number of years. And BP has actually made a public $30 billion investment committee in hydrogen going forward, so super exciting. Moving to the bottom left, I'll touch quickly on business growth. We were awarded $3.1 billion in the quarter, which took our backlog and options up to circa $21 billion. But importantly, the book-to-bill for the group was 1.4, with GS at 1.0 in what is typically a slower quarter, and STS at 1.9 on a 12-month basis. I mean, I think these are terrific indicators of our continued momentum for 23, and of course, towards our 25 targets. And I think the other key takeaway from this section is that we're feeling really, really good about 23 in general, with 85% of our work now under contract. That's really a high level for this. Touching on the financials, again, at a high level, obviously Mark will dig in a bit in a moment, but excluding OAW, our revenue was up an impressive 18.18%, with margins also up 170 bps to 11%. Cash was positive, albeit seasonally low, plus with cash out events like comp payouts, et cetera, in Q1, These were all as expected, and our net leverage now stands below 2.0. So really strong balance sheet. Now, although we beat consensus by a fair amount, we have resisted increasing guidance this quarter. I guess we're going to want to see how the rest of the year plays out. But with 85% of our work secured and with a strong and active pipeline, I will reiterate that momentum is really good. Now onto slide seven, and we'll just touch a little bit more on markets and some of the award and the momentum that comes with that. So slide seven. So starting on the left-hand side, the market across sustainable technology continues to be really buoyant and it lines up nicely opposite our suite of offerings. Now we spent quite a bit of time on STS last quarter and the market drivers that we talked about then still hold today. So I won't really go over this again. But I booked a bill in the quarter once more at pace, and we've highlighted a couple of key wins on the bottom left. Phase two of Plaquemines was given the green light, a great win in sustainable services. And directionally important, we also secured our first plastics recycling module on the IP side of the house. And I think this demonstrates these projects are now moving into the next phase, the execution phase. with proprietary equipment order, so clearly more to come in this area. There are a few key pieces of info on top of what's on the slide. The trailing 12 months booked to bill excluding, so without plaque amends, was 1.6. I just wanted to put this in context to demonstrate how well the whole portfolio is performing. In Q1 alone, we secured seven ammonia awards. Three in green ammonia I highlighted earlier, plus one blue, and three gray focused on additional capacity. So that's 77 ammonia stroke hydrogen-driven projects in the quarter. The projects are in different phases, but the key takeaway here is it's a clear signal to the growing demand across the ammonia hydrogen markets that we have been highlighting for some time. Another key takeaway is that there is a growing mix of long-term contracts in the STS portfolio, which I think should really serve us well into the future. So Plaquemines, BP Hydrogen, and the recently announced win for Equinor in Canada are all really good examples of this. So all are multi-year, giving us greater visibility and quite a bit beyond 2025. Backlog in STS is a touch under $5 billion, which is circa three times annual revenue. So a really good shape. Now onto government solutions. Again, the market fundamentals are similar to what we described last quarter. Tensions in Europe and geopolitically in a global context continue. Now this is driving increased activity both domestically and overseas in a number of our business areas, but obviously and more noticeably in readiness and sustainment. The defense budget, albeit a little bit or a long way to go to formalize, is directionally favorable and lines up nicely opposite where KBR has positioned itself. Space budgets are also up in civil and significantly in military space. Again, a very nice fit for us. Mark will cover later a great performance in our space business, which reflects this increased activity. And as I have stated previously, our military space business, which actually sits inside our defense and intel portfolio, grew over 20% last year and has had a terrific start this year in the first quarter. Internationally, the increased peer threats are driving closer cooperation across the Western allies, AUKUS being a great example of this, and there's increased activity specifically in the advisory consulting arena where Fraser Nash lives. In what is traditionally a very slow bookings quarter, I think we outpaced a bit with a book to bill of one, And this does not include the recently announced OMS 3 award for NASA, where KBR is a minority joint venture partner. But to give you a scale context, we'll add circa 100 people to execute our work in that program. Overall, that OMS 3 award is approximately $700 million takeaway that we'll book our share of in Q2 or Q3, depending on protests. And our book-to-bill does not include anything for HomeSafe yet. Now, just on HomeSafe, the transition work has passed 50% complete, so we've passed that milestone. It's all going very well, and we've made very good progress on the commercial side as we head towards our first moves later this year. There were multiple awards across all our business segments that drove the book-to-bill performance, including increased task orders and log cap, in the US and in Europe, some good awards under IACMAC and the 10-cap contract frameworks, several high-end R&D awards, meaningful on-contract growth in our larger programs, increased activity within our Intel portfolio, and numerous consulting assignments. Now, I think this really demonstrates the value of the KBR business model and where we sit in our markets, and it kind of ensures that we can go after the big fish but we don't rely upon them. Now, you may have seen the new space suit that was demonstrated earlier this year. Axiom is the main contractor, but as you will know, we're a key design partner behind this exciting program, so that's pretty cool. And staying with NASA, and a huge shout out to our team as they were awarded the Supernova Award. Now, that's the highest safety and excellence award bestowed by NASA, so quite a big deal. I mean, an absolutely bang on a zero harm value, so a great, great win. Overall, I would say the feedback from the business is that award activity levels have gained momentum through Q1 after a sluggish start at the turn of the year, which I think bears well for Q2 and Q3. So in summary, overall, our momentum continues with multiple market factors favorable. Our mission focus and delivery is absolutely top of mind, and I think you see that flowing into our results across the company, and we're feeling really, really good about our start to 2023. So with that, I'll now hand over to Mark, who'll dive into the numbers and segment performance a bit more. Mark.