KBR, Inc.

Good morning all. I would like to welcome you all to the second quarter 2023 KBR earnings conference call. My name is Brica and I will be your moderator for today's call. All lines are on mute for the presentation portion of the call. We have an opportunity for questions and answers at the end. If you would like to ask a question please press the star then 1 on your telephone keypad I would now like to turn the conference over to your host, Jamie Debray. So, Jamie, please go ahead when you're ready.

Thank you. Good morning and welcome to KBR's second 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 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, 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 a warm welcome to our Q2 earnings presentation. We've actually got quite a bit to get through today, so let me dive straight in and start on slide five. Zero harm. So we recently issued our sustainability report for 2022. Our ESG commitment and alignment to shareholder value is unwavering. Now we've highlighted a number of key stats on the slide, but I would urge you to read the sustainability report as obviously there is a lot more than we can show you today. A few key stats and some takeaways from them. The value of revenue directly impacting sustainability for our customers crossed the $2 billion threshold in 22. I think this is a clear indication of increasing alignment with shareholder value as we progress our ESG agenda. I think a real differentiator for KBR. Now, 2022 was our fourth, yes, fourth consecutive year of carbon neutrality, and we will continue with offsets as we head towards our operational net zero target in 2030. There are a number of external recognitions on the right-hand side, some of which you have seen before, like Fortune's most admired companies, and Forbes' top female-friendly companies. But in addition, we were recently recognized by Ecovadis as a gold standard sustainable company and by USA Today as a climate leader this year. And this quarter, which we did announce, we achieved MSCI's highest ESG rating of AAA, all of which we're very, very proud of. but all of which we could not have achieved without the commitment of our amazing people. So a big shout out and thank you to them. So onto slide six and business health. On the people front, we've increased our overall headcount through the end of June by 18.18% year over year. Now this is not the only measure, but I think it's a solid indicator that our talent acquisition investments are working and that our businesses continue to grow. As we're now in summer, and with the extreme heat across the world, don't we know it, it's timely we update you on our future talent and intern programs. KBR offers summer internships to hundreds of students each year, with full-time offers ultimately extended to the majority of candidates, which is a good fact, I think. We recruit these students through university partnerships. In fact, we've over 150 universities across the world that we partner with, including minority serving institutions to obviously encourage minority participation, support our diversity efforts, and of course, foster inclusion. Once students graduate and join KBR, we provide an early career rotational program, which is actually full time for two years. It consists of four rotations and importantly, including one international rotation. And this happens both in the business and the functional areas. And we've seen great success with these programs thus far, and they really continue to bolster a talent pipeline, which I'm sure you will agree is very important. Moving to zero harm on the top right, we've covered a number of key points already, but I'd just like to highlight that our safety performance this year continues to be top quintile. And this is all about looking after our people. And as I've said many times before, good safety is frankly good business. So another shout out to our people who continue to deliver every single day. Now moving to business growth, bookings across the group were pleasing with trailing 12 month book to bill of 1.1 times. Now this resulted in an increase to backlog to $21.1 billion, which I believe is a strong reflection of converting our pipeline, which really remains attractive across the segments. With no big awards in the quarter itself, this once again shows the resiliency of our business model. For 2023, we now have over 90% of the work required to deliver on 2023, quite a feat at the end of June. And another good indicator, I think, of the resiliency and the predictability of our business model, of our outlook, and ultimately our targets. Now on to the high-level financials. Our revenue grew in line with our targets at 8%, and that's even higher XOEW, but with an associated operational EBITDA growth of 16%, 1.6%. Terrific. Now, you may recall we sold some non-core assets, some legacy investments in roads in the UK and a US property in Q2 last year, which we have adjusted out so you can see the true operational performance year on year. This clearly reflects the increased margin performance across the business, but in STS in particular, and the impact this is having at the group level. Cash performance was terrific after a typical sluggish start in Q1, and we're at 147% conversion year-to-date. Again, absolutely outstanding. We continued. In fact, we upped a bit our share repurchases and coupled with dividends we returned $95 million to shareholders in the quarter for a total of $172 million in the first half of 2023. I'm also very pleased that we retired the remaining legacy issue from Log Cap 3, which removed a sizeable legacy risk and gives certainty of outcome, which we're very pleased with. As you know, we said we would seek to settle the convertible note and avoid dilution this year. And in the quarter, we made a formal election to settle the convertible notes in cash. Now in making this cash election and partially retiring the convertible notes and note hedge, we triggered an accounting impact which caused the special charge of $314 million and that hit the P&L this quarter. Now just think derivative accounting. So Mark will cover this in detail in a moment, but the technical accounting for the convert notes does not change the underlying economics of how we settle the maturity with minimum impact to KBR. And this charge was adjusted out of our results and appropriately so. Now, in addition to the cash election, we extinguished almost 30% of our convert liability this quarter. So getting a good chunk of that obligation behind us while maintaining a strong balance sheet and leverage. So great outcome. So in short, we've had a terrific first half to 23 and we will be raising our EBITDA guidance accordingly and Mark will cover that later. Now onto slide seven and a few words on our key markets. Firstly, sustainable technology continues to outperform. not just in financials, but in bookings as we continue to leverage the energy trilemma. We've talked about that many times. And taking advantage of these market drivers we discussed last quarter, resulting in a book-to-bill of 1.4 on a trailing 12-month basis. A real, real solid indicator for future earnings. Backlog pushed across the $5 billion hurdle and is a great indicator for a continued momentum. The quality of work we are winning is really impressive. And we've highlighted three on the slide that are firmly in the energy transition space. We have a strong capability in lithium that we acquired a few years ago. Technology and know-how focused on lithium extraction that has been expanded upon as we look to the next generation battery technology with ISU chemicals. After a number of ammonia awards last quarter, We were again pleased to announce that Avena Clean Hydrogen has chosen KBS KGreen technology solution for its green ammonia project. This is a 2,200 tonnes per day plant, so very much at scale, so very exciting. And finally, in the green refining area, Hindustan Petroleum has chosen Arose technology. We've talked about that many times, and I think this really just demonstrates continued activity in this area. Now on to government solutions. Obviously, the highlight for the quarter, which was in everyone's mind, was to get through the debt ceiling process. Now, award of large contracts still remains fairly slow, and awards, we think, will come through a bit lumpy and are somewhat difficult to predict as the year progresses. Spending priorities, as we highlight on the slide and have discussed previously, are very much in a wheelhouse. And as per last quarter, I would highlight the resilience of our business model with a book-to-bill in the quarter of 1.0 and on a trailing 12-month basis of 0.9x. And this has been achieved without a significant award in the quarter, so a highly resilient and agile business model. However, in saying that, as you've seen in July, we now have been awarded the IMOC3 contract by NASA which will come through in our Q3 numbers, which is significant. As you're aware, we have a conservative booking policy, and we do not book awards under protest. So also in Q3, we should hopefully see resolution of the OMS III and the SEAS II contracts, which are both under protest, both of which you're well aware of. So Q3 is actually shaping up to be one of those positively lumpy bookings quarters. So quite very exciting. So there are a few highlights from the quarter on the bottom right. On IMOC-3, the value has gone up quite a bit. And like most large NASA contracts, it has a long period of performance and will run for five years base with four additional years in options, so nine years in total. And IMOC-3 is also strategically important as the work not only covers the International Space Station, but has an increasing focus on Artemis and an Orion as we return to the moon. And sticking to NASA, it's worth highlighting the mission integration contract that we secured working with a small business. Now, we view small businesses as strategic stakeholders, and our teams have forged some really strong and trusting relationships that have not only resulted on contract wins like this one, but we have also been recognized by our customer for excellence in small business utilization, which I think is very important. strategically important we expanded our base operations presence securing support services in the Indo-Pacific. This is an area of increased focus and presence for the U.S. military and of course AUKUS into the future. I will now hand over to Mark.