KBR, Inc.

Good morning. My name is Drew and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q4 and FY 2023 KBR Inc. Earnings Conference. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press start followed by one on your telephone keypad. If you change your mind, please press start followed by two. I will now hand over to Jamie Debray, Vice President of Investor Relations. Please go ahead when you are ready.

Thank you. Good morning and welcome to KBR's fourth quarter and 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 2. 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.

Thanks, Jamie, and a warm welcome to our 2023 year-end earnings presentation. I will start on slide five. As we reflect on 2023, I wanted to begin today with a theme of looking after our people. Creating an environment where each and every person can go home after work at a minimum, the same as when they started their day, was very personal to myself and the whole leadership of KBR. A zero harm program is only as good as our processes and of course our people being committed to our values every single day. I'm therefore pleased to report that once again we achieved top quintile results, an outstanding achievement given what we do and where we do it. So a huge shout out to KBS people all across the world. There are a number of achievements and milestones that we have celebrated through the year as examples of this exemplary performance on the slide. I won't read them as there are many others but this gives us a good feel for the global and complex nature of what we do and why we are so proud of our HSSE performance and ongoing commitment to continual improvement. Onto slide six on business health. I will focus my remarks on the full year performance and outlook. I'll also give you an update on Home Safe. Mark will cover the quarter results, which are once again resilient, we met our exceeded expectation on all key metrics. Mark will also break down the year a bit more and present, of course, on 24 guidance. On the people front, we increased our headcount by double digits, which is aligned with our organic growth. Pleasingly, through the year, our attrition reduced, and through independently run surveys, I'm proud to report that KBR is now certified as a great place to work in 16 countries. This is a direct result of the emphasis we place on valuing our people. We are, of course, not perfect and we will in 24 and beyond 24 strive for continual improvement and deliver even greater investment in our people. But I think it's important we must also recognize the 23 performance. Talking of recognition, you can see some of the awards we received during the year. And importantly, these were all assessed independently. On zero harm, we've already covered the safety stats. From our people survey, you can see that our people truly believe that we are committed and do care for them and about them. As you're aware, our unique ESG position allows us to deliver shareholder value in addition to fulfilling our ESG goals. These align with UN Sustainable Development Goal number seven, which is affordable and clean energy. And as you'll see on the slide, we've listed an example from each of the businesses. In GSUS, we support the FAA Vail project, designed to achieve cleaner emissions from airport ground support equipment. In GS International, we support the UK MOD with testing of zero-emission military aircraft. And as you know, in SDS, we have many sustainable clean energy technologies, which help some of the largest organizations in the world deliver cleaner environmental outcomes. Moving on to business growth. Now, these are the metrics around work winning. Overall trailing 12 months book to bill was 1.1 times. And as you would expect with this result, backlog was up 10% year on year to $21.7 billion, including options. This provides great visibility of future earnings potential and importantly excludes home save. Now, more positive news on that in a moment. In terms of 2024, this translates to 75% of work under contract as we start the year. Given in a typical year, we also execute 15% to 20% of our revenue on smaller short-term consulting contracts, plus, of course, ongoing contract growth, this is a very solid basis for the year ahead. On to group financials. Strong organic growth at 11% XOEW. A fantastic performance in its own right. But more impressive was the associated adjusted EBITDA result. We delivered 12% year-on-year adjusted EBITDA growth by increasing margins to 10.7%, an outstanding result. Onto cash. We settled the convert and warrants in cash as promised. Not only avoiding dilution, but reducing our share count, truly delivering on our commitment to maximize shareholder return. This was all possible due to excellent cash management and strong treasury and tax management with adjusted OCF conversion at 117% for the year. Absolutely outstanding. So in short, we met our exceeded expectation across all key metrics for the full year. Revenue growth, adjusted EBITDA, just an EPS and of course cash. Our book of business underpins our continued momentum and growth. Our vision is to deliver technology and increasingly higher end, technically differentiated services in attractive end markets that matter, safe, secure and sustainable. We continue to realize our vision, continually moving away from markets and business models that become commoditized growing our technology portfolio both in GS and SDS, and ensuring we operate more in the differentiated services market. This, of course, should result in enhanced margins over time, which was clearly the case in 2023. All of this was achieved in quite a volatile year, not only geopolitically, but also fiscally, especially with increased interest rates. On to slide seven. I'm not going to spend too much time on these slides as the markets we discussed last quarter and in fact most of 2023 remain unchanged. You can see three awards on the left demonstrating how engaged KBR is across sustainability in all aspects of the energy trilemma. STS book to bill on a trailing 12 month basis was 1.1 times. And excluding the large LNG project, which of course has a large burn, the trailing 12 month book to bill was 1.2 times. I think a really strong indicator that SDS, both in technology and sustainable services, continues to grow and win work in critical areas aligned with our vision. The margin performance demonstrates this, which Mark will cover in a moment. As a reminder, we have a number of inbound requests to do a deeper dive on STS. Why has it grown adjusted EBITDA 50% year on year? What is the book of business and how does it work off to demonstrate the non-cyclical long business attributes? How do we make our returns and what are the key markets going forward and their outlook? Our intent is to present a focused, I guess what we're calling an STS primer, the week of March 11th to answer these questions. The objective is to increase investors' knowledge of this business before we go into an investor day at which our focus will be very much on future direction, increased synergy, and the potentials going forward. On the government side, in a year of volatility, both internationally and domestically, the team did an amazing job. GS book-to-bill on a trailing 12-month basis was 1.2x. We have highlighted some example wins that again show the realization of our vision. Firstly, in technology, directed energy via DM Shorad. High-end consulting via Fraser Nash working with the UK government showing very strong synergy with SDS. And thirdly, absolutely great performance via highly differentiated services leading to extended scope on the preservation of the force and family contract. KBR is very well positioned in key markets that post-appropriation we expect will be well funded. Now on to slide eight on Home Safe. Last quarter, we recognized that we delivered a status update that was devoid of clarity. It was the truth. but we also recognize the market does not like uncertainty. As you can well imagine, our team and Transcom have been working very hard together to provide more clarity. We created a joint Tiger team with Transcom to improve the integration of government and contractor systems. We added additional leadership with specific operational expertise, and together we are partnering with individual services branches to drive organizational change management. We are jointly committed to a successful path forward and feeling very upbeat. I am thus pleased to report that round one systems testing was completed successfully in January. Now this clears the way to starting operational test moves at the local level in spring of this year. The volume ramp will be in a controlled manner through the year with the expectation of significantly ramping up into 2025, especially the busy season, and international moves will then follow as we head into 2026. So in short, circa a delay of one year. Now remember, this is a nine-year program, so although a delay is always frustrating, I believe it has allowed both sides the time to de-risk the startup and of course the ramp, which ultimately is a good thing. In addition, we have reached contractual agreement with Transcom on an extended and funded establishment and test period, which covers HomeSafe's project management and development costs up until we reach a sufficient volume of moves, therefore insulating us from carrying overhead costs before higher volume moves get underway. Now, I've seen some reports and quite a bit of media noise on the supply chain side of the moving and transportation industry. Firstly, I'll start with emphasizing the intent of this program is to redefine the moving experience of our military personnel and their families. Secondly, it's to deploy an IT backbone with intelligence to retain data and knowledge that allows for optimization, and importantly, accountability. To achieve this, we require a certain level of disruption, and of course, disruption leads to change. To demonstrate the maturity of the supply chain development for the contract, here are statistics on the current state of our supplier network. In the HomeSafe digital supplier management system, we have over 2,200 suppliers registered as of today, of which 380 have already fully executed contract agreements, which can provide 100% coverage of our current service areas. And we have several large van lines also committed to the program once we get to higher volumes. The new global household goods contract is not only limited to current DOD approved providers and will be open to a broader set of the transportation market. We intend and commit to being entrepreneurial and innovative, attracting not only traditional van lines and owner operators, but also non-traditional providers to do moves in a more efficient manner. I suspect the supply chain will change in areas and there will likely be noise as a consequence, which is only to be expected. Both HomeSafe and Transcom are committed to these outcomes, which include paying a fair and reasonable rate to service providers, rewarding those that perform with additional volumes, including small businesses, of course, and providing better services to our DoD families. So what does this mean for 2024? We have a more defined path forward and are in a much better position given the recent modification agreement and supply chain developments. We intend to set initial 24 guidance with a very conservative view of home safe. With local test moves beginning in the spring, we expect nominal amount of revenue circa 125 to 175 million dollars during the year. with profits as we've guided before at the mid single digits and increasing over time to align with the GS margins today. Of course, we expect volumes to ramp considerably in 2025 with the domestic busy season and again in 2026 as international moves are added. One quarter is sometimes a long time in business and clearly there has been significant progress since Q3. And I want to be very clear, we're extremely upbeat about Home Safe and what it can deliver to men and women in uniform, but also to our shareholders over the years ahead. I will now hand over to Mark, who will cover the quarter, the year in a bit more detail, and of course, 24 guidance. Mark.