KBR, Inc.

Hello all and welcome to KBR Inc's third quarter 2023 earnings conference call. My name is Lydia and I'll be your operator today. If you'd like to ask a question during the call, you can do so by pressing star followed by the number one on your telephone keypad. We kindly ask that you limit yourself to one question and one follow-up only. It's my pleasure to now hand you over to your host, Jamie Debray, VP of Investor Relations to begin. Please go ahead.

Thank you. Good morning and welcome to KBR's third 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 a Q3 earnings presentation. So let's start on slide five. Our zero-harm moment today attempts to give you a high-level view of how KBR is engaged in space sustainability and security. This, for us, is both from space looking back to Earth and in the space environment itself. So starting on the left of the slide, we have highlighted a couple of programs from which data is generated from space to enhance our environmental understanding of what is happening on our planet. And this gives real-time analysis and trending of things like deforestation, arable land development, et cetera. In the middle, we have highlighted our proprietary technology, Iron Stallion, that digitally tracks satellites and space debris using proprietary algorithms, advanced AI, and machine learning to predict, estimate, and validate future events. In addition to the U.S. DoD, two of our allies have acquired and are using Iron Stallion today. And on the right, we have highlighted two programs focused on going to space, working on next-generation satellites for Earth monitoring with the added objective of resurfacing and recycling existing assets to minimize space junk, and the exciting work being done at NASA Ames, which is in Silicon Valley, a key research center for NASA where KBR has been engaged for many years looking at water and ice on the moon to sustain human exploration. And this is KBR playing in the knowledge economy in the space vertical across both civil and military space, developing and deploying differentiated know-how and technologies, and I have to say it's pretty cool stuff. Our people really do amazing things that matter every day. So onto slide six and a quick look at our overall business well-being and business health slide. On the people front, we have increased headcount by low double digits since this time last year. I think a good indicator of managed sustained growth in a services and technology business. From an innovation perspective, we're in the middle of our first global hackathon. Now, this is a competition where volunteers competed in 145 teams across the world, innovating to develop and present solutions in the areas of sustainability, digitalization, AI, and branding. The six regional winners will be coming together to compete in the final later this month. The leadership driven myself have all reviewed the six final submissions, and I have to say they were absolutely terrific. and will certainly be taking a number of their ideas and solutions forward. So I think really, truly a value-add process. So also in a world where there is more working from home, and thus I think a greater risk of creating silos, this is the added benefit of connecting people and fostering collaboration across non-traditional boundaries. So very, very successful. And lastly, on the people front, We were notified within the last week that we have been once again recognized by Forbes as one of the world's top companies for women in 2023. And this recognition, I think for the third consecutive year, really underscores our commitment to fostering an inclusive and empowering environment for all our employees. And we are proud to be forging forward in gender equality in the workplace. Now on to HSSE. Our people continue to really impress with their own parallel commitment to health, safety, security and the environments they're working in, looking after themselves and those around them. And I think the statistics really speak for themselves and are really, truly best in class. This obviously helps with recruitment and is a very clear example of our values and culture. And it's also a key differentiator with clients and with partners around the world. Now, as you know, Zero Harm is a broader ESG and sustainability program. And internally, we link our activities to the UN Sustainability Development Goals. So we thought we would present what KBR is doing opposite one of these goals each quarter going forward. So we started today with water and sanitation. So just to give you a flavor, KBR today runs the combat water supply for the UK military. We run both potable and wastewater in a number of sites across the world from Djibouti to Kosovo. We are heavily engaged across Australia supporting the major water authorities in upgrades, expansions, modernizations of the various cities' water and wastewater infrastructure. And we engage with local communities and schools to educate on plastics in the oceans, organised river and beach cleanups, etc. through our One Ocean programme, and you've seen that before. So just as we did for space sustainability, I think this gives you a different lens into and across KVR. Onto business growth on the bottom left, a really, really strong booking squatter reflecting continued momentum as we continue to 24 and beyond. As you would expect, our work under contract to allow us to finish strongly this year, is over 95%. And on to the financials at a high level. 9% growth, all organic. I'll say that again, 9% all organic at the revenue line, with margins at the group level of 11%. A really terrific performance from our people around the world, delivering for customers, for each other, and ultimately our shareholders. Cash was a standout in the quarter with conversions ahead of pace at 125%. And in a world of higher interest rates and volatility, this was a critical focus area for us, as I'm sure it is for many, many companies out there. But our people really stepped up once again. And Mark will also cover other positive activities in cash in a moment, which all help to provide deployment optionality. And as promised, and of course, linked to cash, One subsequent event of note is that we retired the remaining convertible principle of $250 million in cash on the first of the month as it matured. That's the first of November. A clear demonstration of our belief in the value upside of KBR. Now on to slide seven. The markets remain blind across the energy trilemma as we've discussed previously. Ongoing geopolitical instability, I think, only adds to this, particularly in the energy security area. And we continue to see high levels of activity across aging assets, as owners continually recognize the need to become more efficient, but also in a decarbonized way, using a variety of science, engineering technologies, including digital and data-enabled tools. STS trailing 12 months book to bill was 1.3, And we've highlighted three of multiple awards this quarter. Firstly, we announced that we had been awarded the world's first commercial ammonium cracking project with Daesan in Korea. This is effectively taking liquid ammonia and cracking it back into hydrogen so that you can transport and utilize it as a gas in existing facilities, infrastructure, and networks. Now, this is a big deal and a real enabler. as it allows countries committed to a hydrogen future to deliver on that commitment, and importantly for KBR, can have the effect of significantly increasing demand for ammonia production, where of course, as you know, we have a very high market share. In the UK, we are deeply engaged with EET Hydrogen and the UK's leading industrial decarbonisation project. This project is the largest blue hydrogen project in the UK. and is a fantastic example of synergy across all of sustainable technology solutions. It combines our innovative decarbonizing IP with best-in-class engineering services and digitalization. And finally, in the energy security market, where we believe gas is the transition fuel, we were awarded a reimbursable EPCM fully aligned to our existing risk profile Services contract for the Pluto LNG train one modifications in Australia for Woodside. Now on to government. So on the government side, the market in the US continues to be robust as we look beyond with budgets in critical areas and emerging technologies growing. With a focus on operationalizing these as quickly as possible, which is a sweet spot for KBR as we've discussed many times. Ongoing and recent world events elevate these priorities underneath for greater multi-government collaboration, like AUKUS, which emphasizes the significance and value of our global GS segment as we can play a critical role in addressing these challenges. We believe that our GS international business is a real differentiator, engaged in high-end consulting services in critical areas of defense, energy transition, and critical infrastructure. Book-to-bill this quarter was excellent. GS alone was 1.6, bringing our trailing 12 months for the whole segment back up to 1.1 times. Now, you may recall GS International had a strong bookings last quarter, so the whole segment is well positioned as we move into 2024. We've highlighted a number of awards for the quarter in our science and space business. In total, these awards are well over $2.5 billion and importantly, are all multi-year. With these awards coming through in Q3, and with the IMOC we compete increasing in value by several hundred million dollars, and with OMS and SEAS all being additive, as both were takeaways, it's easy to see that on a full run rate basis, 2024 for science and space should be a good growth year. Very exciting. Similarly in Defence and Intel, we've had several key awards in the quarter, some real nice wins in the Intel side with customers like the NRO, but unfortunately we can't say too much more about these. And it was also nice to see awards under the IAC MAC contract vehicle pick up cadence in the quarter. So similar to Science and Space, our Defence and Intel business are in real good shape for growth as we move into 24. From a technology perspective, KBR's proprietary secured cloud and mission services platform has been prioritized for the federal risk management program. A platform called Vault is one of only six prioritized platforms and is just one example of the investment we are making in the AI space. Investments in this area continue to open new opportunities for KBR, both with government and with commercial customers. And although not specifically shown on the slides, registered sustainment after a flourish for slightly down few months in Europe has been awarded new multi-year task orders that will also provide opportunity as we head into 2024. The final point to make on new businesses, while KBR generated 9% of organic growth in Q3, we also finished the quarter to record high backlog and options since our transformation. I think really indicative of great momentum and demand across all of KBR. And not to forget on Home Safe, as Transcom leadership said in early October, the program hasn't quite started yet as readiness is still being evaluated. As you're aware, the number one priority of this effort is to improve the moving experience of service members, civilians and their families. And Transcom and ourselves are fully committed to delivering this via home safe from day one. And thus we are jointly adopting a careful and calculated approach to ensuring this outcome. I'm sure you'll recall that we assumed no moves this year in our targets with a significant ramp up during 2024 with modest initial margins, mainly due to the newness of the program. Although it hasn't started yet, we do expect moves to start in Q1 of 2024 and ramp progressively. But today, it still remains unclear what that ramp will look like. There should be more clarity when we report full year results and 24 guidance in late February next year. Now, we've always said, given the uniqueness and the dynamic nature of the markets and the businesses that we are in, that there were many ways to meet our targets And interestingly, the overperformance of STS will fill the EBITDA we planned for HomeSafe in 2024. If one then assumes that we do get started with moves in 2024, we should be in real good shape from an EBITDA perspective at the group level. As we've said consistently for many quarters, KBR is a company with multiple pathways to earnings growth, and the real focus needs to be on EBITDA for the whole corporation. So in short, KBR continues to move upmarket, increasingly playing in the knowledge economy, growing EBITDA, delivering strong cash, and truly performing, and has secured the right work and exciting well-funded verticals to keep on pace to close at 23 and keep momentum as we head into 24 and beyond. With that, I will now hand over to Mark, who will add his own color, of course, and back up the words with the numbers. Mark.