KBR, Inc.

Good morning everyone and welcome to KBR's third quarter 2024 earnings conference call. My name is Emily and I'll be coordinating your call today. After the presentation, there will be the opportunity for you to ask any questions, which you can do so by pressing start followed by the number one on your telephone keypad. I will now turn the call over to our host, Jamie Dubre, Vice President of Investor Relations. Please go ahead, Jamie.

Thank you, Emily. Good morning and welcome to KBR's third quarter fiscal 2024 earnings call. Joining me are Stuart Brady, President and Chief Executive Officer, as well as Mark Sops, 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 welcome to our third quarter earnings presentation. I would like to start on slide four, if I may. Now, we show this on every earnings presentation, so no surprise. It lays out our zero harm program and the pillars, both environmental and social, that underpin that program. Now, the progress we've made in each of these pillars is highlighted in our annual sustainability report, which takes me nicely onto slide five. So this month, we issued our 2023 sustainability report. I mean, the team does an amazing job in showcasing all that we're doing across these pillars. We've shown only a few highlights on the slide here, and I'll pick up on a few. Our health and safety performance is once again top quintile. really demonstrating our commitment to really looking after our people. 37% of KBR Group 23 revenue, actually over $2.5 billion, is directly linked to sustainability, and I think thus shows clear alignment with shareholder value, which we've talked about before, is a clear differentiator for KBR. The result from our people survey, which is run by an independent company and done anonymously, resulted in KBR being classified as a great place to work in multiple countries. Now, the survey showed us a couple of things. I think the first, that our focus on people is truly making a difference, and secondly, that of course we are not perfect and we still have work to do. On the side of the slide, you will see our continued commitment to strong governance, and we continue to make progress in IND advancing our agenda on multiple fronts. Our maturity and commitment and delivery of sustainability has been externally scored by various agencies. And you've seen that before. And MSCI, we believe, is the most cited. And we're, of course, delighted to have achieved for the second consecutive year the very highest ranking of AAA. As I said, these are only a few highlights. And I would encourage you, if you have time, to have a look at the full document, which is on our website. Now on to slide six. and the group financial highlights for the quarter. This was another clean quarter and frankly, another set of terrific and consistent results. Group revenue was up double digit at 10% year on year. Adjusted EBITDA increased 18%, won 8% over the same period. I think once again, demonstrating the focus and discipline to deliver on a strategy to winning the right work and then executing with excellence with prudent cost management, and this has resulted, as you would expect, in enhanced margins, which were up 70 bps. Cash was once again a standout, with year-to-date conversion at 129%, an absolutely spectacular performance. Now on to book-to-bill. Now, as you know, we've been providing a book-to-bill figure ex the Plaquemines project for the last several quarters, to convey underlying business performance without the large LNG burn. And beginning this quarter, we will switch to only using this figure in our materials, especially in light of the new GV with technique, which I'll cover in a moment. On this basis, I'm really pleased to report that our book to bill at the group level was 1.2x in the quarter, and both STS and GS in particular had a strong quarter. And this sets us up well to close out the year, but this together with our attractive pipeline really gives the group a solid foundation heading into 25 and increases confidence to achieve our industry-leading long-term targets. At this point, I would like to publicly recognize and thank our people all across the world who continue to deliver every day doing what truly matters. and without them, these results would not be possible. Now, as you're also aware, we closed on the Lindquist acquisition, and I'm pleased to report that the integration is well underway and the expected alignment in values and culture are shining through. We've had numerous town hall meetings with Lindquist employees all over the country, and we could not be more pleased with their warm reception to KBR, their deep domain expertise, really outstanding technical capability, and their dedication to serve the mission of the customer, which is 100% aligned with how we operate, doing things that matter. Lastly, I'm pleased to report that we will be increasing our guidance for revenue, adjusted EBITDA, and adjusted EPS this year to reflect the addition of Lindquist and our ongoing organic strong performance. Now onto slide seven and some key awards. Let me start with STS and Saudi Arabia. Now, there's been quite a bit of speculation on this, and we're now in a position to talk about our role on the Liquid to Chemicals project for Aramco LTC. As we've discussed previously, there was an opportunity across multiple world-scale projects. Four olefin crackers were initially tendered as pre-front-end design, front-end design, and PMC project management contracts. Plus, there was an overarching coordinating project management contract, or CPMC. Now, KBR won one of the crackers and the overarching CPMC, and this was actually the maximum any single company could win. Now, the cracker project that KBR secured due to competing Aramco priorities was actually suspended, and this has been made public. That said, the CPMC, we believe, is the key role. This is a multi-year endeavor, employing critical resources, covering and not only touching all the Olyphans projects at all stages, but also developing and working the integrated schedule, supply chain management strategy, data and digital management. First for Aramco, really managing the data in a digitalized way, and really sort of looking at continuity of safety systems and the data digitalization of those safety systems, and being the project-wide technical authority. And to be clear, we will have teams embedded in each of the pre-feed-feed PMC contractors doing the other large projects on Aramco's behalf. Now, this will ramp up progressively through the rest of this year and in 2025. And as a matter of fact, we'll continue well beyond our long-term targets. Now, to give you a feel, revenue through the pre-feed will be between $50 to $100 million. And then going through feed and into execution, revenue will be several times this magnitude, so quite significant. In addition, again with Aramco, we have also secured another of the offshore gas development front-end designs. this is our third to date, that are really key enablers for the LTC program itself. This is another substantial and important piece of work, again, setting us up well for 2025 and a significant contribution to our long-term targets. I would remind you that Aramco are replacing crude by gas, with gas, sorry, to generate power. And the crude will then go via the LTC program LTC program into various petrochemicals. This is both value add for the crude, but reduces the carbon footprint of energy production in the kingdom significantly. So now let me turn to LNG. Again, quite a bit of speculation on this market. So firstly on Plaquemines. We expect first LNG before year end. This will be one of the industry benchmarks for speed to market. Now, further LNG will be produced as the individual smaller trains are commissioned progressively through 2025 and into 2026. In the quarter, we secured the Lake Charles project in Jaunt Venture with Technique. This is a partner we've worked with successfully many times who have strong construction and fabrication capability, and the customer is Energy Transfer. To be clear, The contract terms are firmly aligned with our stated risk profile, and KBR will be performing management and technical services similar to our role on Plaquemines. And again, similar to Plaquemines, this will be reported through equity and earnings. Energy Transfer is making solid progress in off-takes and has the balance sheet to move the project through to final investment decision. In fact, they've actually placed long lead orders already. That said, there's a bit more wood to chop on this, and I think the election will have an impact on timing. We do not expect FID until the second half of 2025. In addition, and also in the LNG market, in this quarter, we secured the front end design for an additional LNG train for a confidential LNG producer in the Middle East, which could lead to bigger things as that project progresses. And also in LNG, we secured the project management contract, the PMC, for on behalf of ADNOC, the Abu Dhabi National Oil Company, for the new LNG project in Abu Dhabi. To be clear, this is for the execution phase. So again, this is multi-year and valued at circa $130 million. And this follows on from a successful PMC of the front end design that we completed earlier in the year. And finally, we just announced the award of the Shell Manatee Gas Project in Trinidad. And this is an enabler for LNG in that part of the world. As we said previously, LNG is a global business that truly affords KBR attractive opportunities aligned with our desired risk profile and leveraging our differentiated capability. Now let me shift a little bit to emerging technology areas. We announced our acquisition of sustainable aviation fuel technology early in 2024. And since then, we have digitalized and modularized the tech while ensuring we can deliver an end-to-end solution. And this solution, now trademarked as pure SAF, is the first ASTM-certified SAF technology. And we're particularly excited for what's to come as we're now an intersection of increased demand, supportive legislation across the world, and progressive incentives. And the project we announced with Avina is the first in an exciting pipeline of opportunities, and obviously more to come through 2025. On circularity, and in particular related to our investment in MURA and Hydro PRT plastics recycling technology, I personally visited the site in the UK at Wilton and saw the progress firsthand recently. Commissioning is well advanced, and although progress was impacted by skilled labor shortages due predominantly to Brexit, the plant will be producing product before year end. The LG Chemicals plant in Korea, our first modular solution, is on the same timetable, and the Mitsubishi plant in Japan is looking to produce product in early 2025. So in the world of new technology, having the first at scale plant is absolutely terrific. But three operating at scale plants is actually the watershed. And we believe this will catalyze new license and project partnership opportunities in 2025 and beyond. So again, very, very exciting. STS book to build was 1.0 in the quarter. But actually, this does not include the large ADNOC LNG PMC I referred to earlier. That was signed a few days after quarter closed and would be booked in Q4. And now with this and what's in the hopper, we expect Q4 to be a strong booking quarter for STS. Now on to government solutions. In the U.S., as expected, Q3 was a strong bookings quarter due to Department of Defense annual budget cycles. However, our international business also had a great quarter, and together achieving 1.3x for the quarter and 1.1 on a 12-month basis. As some highlights, this quarter were nine awards in a systems engineering business via the IAC contract vehicles we've talked about many times. Actually, this year we have been awarded approximately $1.5 billion in task orders under that contract, $1.2 billion of which were actually in Q3. Now, as you're aware, we book only backlog that's funded, and the $1.2 billion this quarter is the ceiling value of those combined contracts, which we will expect to book and burn over time. So one significant contract worth highlighting contained within that 1.2 billion reflects the increased attention, focus, and funding expected for the Pacific. With a circa $200 million multi-year contract supporting the Naval Warfare Center Pacific program, which is actually a new digital customer for KBR, where we will play a significant role in introducing and testing new technology as we progress the digital transformation and zero-trust environment for that customer. In space, as you know, a key strategic vector for KBR, we continued momentum with a follow-on strategic award by the Naval Research Lab, as shown on the slide. The acquisition of Linkwist was made to accelerate our growth in military space, interoperability, and digital engineering. And in the months since we've closed, Lindquist has secured over $60 million of new orders under a unique contract vehicle that KBR does not currently utilize. And note Lindquist actually does not utilize IAC Max. So with KBR and Lindquist now able to use each other's contract vehicles, the revenue synergy opportunities are exciting because the procurement cycles for these are very, very quick. Now before I move on, I would be remiss if I did not give you a home safe update. The systems testing for the interstate moves were successful and moves have started now. This is very significant as a significant milestone as it clears the way for essentially full domestic moves. While we expect to see an increase in moves in Q4 as new lanes are turned on, revenue for the full year 2024 will be below our expectation. Now, to be clear, there's no impact to profit, because as you're aware, we were conservative in our original guide for 2024. And as a matter of fact, our long-term targets also contain a conservative ramp as presented at Investor Day, so the lower volume in 24 has no impact at all to our targets. A solid relationship with Transcom continues to be collaborative, and we look forward to progressively ramping up on the program and enhancing the moving experience for our men and women in uniform and their families through 25 and beyond. I will now hand over to Mark, who will take you through the Q3 performance in a bit more detail, including the 2024 guidance increase. Mark.

Terrific. Thank you, Stuart, and good day, everyone. I'll pick it up on slide nine. So as you've heard from Stuart already, the results for Q3 were really good across the board, with every single metric you see here up double digits over last year. Margins and cash flow were the particular highlights, with profitability running consistently in the mid-11% range all year and cash flow super strong at $422 million on a year-to-date basis. DSOs, day sales outstanding, continued to run at the lowest levels we have ever seen at KVR, averaging about 60 days through this year so far. And as you know, low DSOs reflect high customer satisfaction and also, importantly, superb teamwork across our operations, our functions, and customer touchpoints. Let me just quickly go on to slide 10 on results of the segments. Over on the left, as you see, STS is humming along with continued good momentum and superb profit growth, consistently above the 20% margin level. As I said before, this team does a remarkable job delivering intellectual property capabilities to customers all around the world, while continuing to grow its services platform also at very attractive overall margins. This is attributed to specialized domain expertise scarce skill sets, and a very cost-competitive delivery mechanism. On the right, government solutions had an excellent quarter as well, with revenues up 11% and profit up 14% on improved margins. Of particular importance, we saw increased award decisions in the US, many of which came in our favor, as Stuart said, after experiencing delays in the first half. Our win rate on award decisions was well over 50%, So it's really a testament to the great team effort there. And as Stuart said, the government book to bill was 1.3x in the quarter. All the while, international grew at an impressive 13% with contribution from the UK, Australia, and the Middle East, which well demonstrates our expanding global reach. On to slide 11 and capital matters. As said earlier, cash flow generation has been outstanding, which enabled deleveraging in September coming off of the LinkList acquisition, which closed in August. So just stepping back, it's terrific to have made such a sizable and high quality acquisition like LinkList, plus deploy about a quarter of a billion in buybacks and dividends year to date, and still have a leverage ratio well south of three times. This underscores the power of our EBITDA growth and also cash generation. It's worth noting we received a credit upgrade attendant with the Lindquist deal with all agencies now at double B plus rating equivalents. Together with the quality of the acquisition, we lowered the borrowing rate on both the new debt associated with the deal and existing debt. We added committed liquidity and pushed out maturities. These actions will help contain interest costs and also enable more deployment options as we go down the road. All forms of capital deployment spanning M&A, buybacks, and debt reduction deliver benefits to us, so we'll balance doing those based on what generates, in our view, the most attractive long-term value for our shareholders. Now I'll finish up with slide 12 and our forward view of guidance. The Lindquist contribution for 2024 is consistent with the information we provided in the acquisition announcement. We are moderately increasing the revenue guide to $7.5 billion to $7.7 billion, reflecting four months of Lindquist in this year's results, and also reflecting lower top line contribution from Home Safe that Stuart just mentioned. On the profit side, with strong year-to-date results and adding Lindquist, we are increasing our adjusted EBITDA guidance range to 840 million to 870 million. For EPS, the net effect of the Lindquist EBITDA contribution and also the incremental interest that stems from that transaction enables a moderate increase to the adjusted EPS guide, raising the floor to a range of $3.20 to $3.30. As I said, cash flow generation has been strong all year, and because the EPS bump is modest with four months of linked list activity, we're sticking with the original cash flow range of $460 million to $480 million. So to wrap it up, another quarter of well-rounded execution, spanning program delivery, winning new work, generating cash flow, and adding Lindquist to the team. This also enabled us to improve the capital structure for better earnings production and future deployment optionality as we look to 2025 and beyond. Thanks, everyone, for tuning in this morning. I'll turn it back over to Stuart.

Thanks, Mark. Terrific job, as always. I will finish up on slide 13 with some key takeaways. So as Mark and myself have said earlier, outstanding third quarter performance with double digit year over year growth across all key metrics, revenue, profit, and operating cash flow, absolutely terrific. On Lindquist, it's really performed well since closing. It's won over $60 million of new work and really delivered solid, strong September results. But more importantly, integration is progressing really, really well. and with revenue synergy opportunities crystallizing, it's a very exciting acquisition indeed. As a result of our strong year-to-date performance and, of course, the addition of Lindquist, we're raising guidance, as Mark just talked about, on revenue, adjusted EBITDA, and adjusted EPS. And finally, on bookings, 1.2 times book-to-bill at the group level, together with our attractive pipeline sets us up nicely for the remainder of this year, of course, But more importantly, it gives momentum going into 2025. So thank you again for joining us on today's call. And I'll now pass it back to Emily, who will open the call for questions. Thank you.

Thank you. As a reminder, if you would like to ask a question today, please do so now by pressing Start followed by the number 1 on your telephone keypad. If you change your mind or would like to be removed from the queue, please press Start and then 2. When preparing to ask your question, please ensure that your microphone is unmuted locally. Our first question comes from Andy Kuplowitz with Citi. Please go ahead, Andy.

Good morning, everyone. Good morning, everyone. Hi, Andy. Stuart and Mark, I know it's a bit early to talk. Good morning. I know it's a bit early to talk too much about 25, but could you give us a little more color into your visibility? particularly in STS growing in line with that algorithm you gave us earlier this year, the 11 to 15% revenue growth as it looks like, as you said, you know, trailing 12 month book to build reaccelerated bidding Q3. And I know you talked about the strong expected Q4 last quarter. I think you talked about some delays in energy transition projects. Are you still seeing those delays? And how do you think about the sustainability of the one times book to build that you're recording Q3 moving forward?

So lots of questions in one there, Andy.

I'm pretty good at weaving them together.

Yeah, yeah, yeah, that's good. I would say that, you know, it's still quite early. We're obviously started our budgets for next year. I think that we're confident that we're aligned with our 11 to 15% growth expectations in STS going into next year. I booked a bill, obviously picked up in Q3 and is looking strong in Q4 to underpin that. The margin performance continues to be very strong. I think energy transition projects, we're seeing more activity in the Middle East in particular around market share, around ammonia and the gas green hydrogen. But I think in general, a lot will depend on the election results in terms of the speed in the U.S. But overall, the energy security market combined with a growing energy transition, albeit probably slower than we expected, but still growing market really gives us good confidence that we'll be aligned with what we presented in investor day in terms of SDS targets. Hopefully that helps.

It does do it. And then Mark, just, I want to ask you about the guidance, just in the context of Lindquist, obviously you put in four months, you mentioned that sort of the offset is home safe. I guess if I just look at the sort of guidance raised, Andy Miller- It seems like, is there anything else that's a little slower than you thought, I guess, because when quest, I think, would be pretty sizable if not more than the EBITDA change in the guidance.

Andy Miller- Thanks Andy just one one clarification, if you will, is well home safe as an offset to link quest on revenues. Andy Miller- We did not really factor in profits for home safe as Stuart said so that's not a reason. uh, for, um, or contributing to your question relative to Q4 and the guide. Um, so that is as expected for the year from a profit perspective on home safe. Um, but we do have interest expense coming in for, you know, for, for Lindquist. So we have, you know, good news is we have three full months of Lindquist, but we have three full months of interest. So we have that, um, occurring, you know, as good as of a job our treasurer has done with minimizing the impact of that, you know, Lindquist is accretive. But it's a couple of pennies. So we didn't think that warranted a big bump. We just moved up the midpoint by taking up the floor. We do have some seasonality that does kick in in the fourth quarter. A little bit on things like just the efficiency of our labor coming into the fourth quarter with holidays and things like that is a little off pace for parts of government and parts of STS. So we're being conservative on our outlook there. And and that's about it. So not trying to get too fancy We're adding adding some to the guide here But cautiously so heading into the fourth quarter and really in context capping off a brilliant year of growth on all metrics and Doing out or above what we set out to do at the beginning of the year And I think just to finish off and I think your original question was on EBITDA guide.

I mean we think the linguist Revenue is about 175 million. It's coming in at double digits. That's about a 17 million EBITDA return. And that's actually the raise that we've put into the announcement, Andy, so completely consistent.

Our next question comes from the line of Toby Summer with Truist Securities.

Toby, please go ahead.

Hey, good morning, everyone. This is Jasper Bibb on for Toby. Sounds like a lot of exciting wins in STS. I'm just kind of curious, like, how do you think mix and some of these LNG or recycling wins ramping up might impact the segment margins over the next couple of years, maybe relative to the flattish margin view you have on your investor day this spring?

I think we, you know, I think having margins in the circa 20% range with a business that's growing 11 to 15%, I think is, you know, the, the targets we set out and that's the targets we're going to hold to, uh, and maybe obviously mix, uh, volatility around margins, mostly going, as we've seen, we've achieved 21, 22 in certain quarters, depending on mix. But, but I think our overall guide stands and our long-term targets over time, particularly through the 27 stunts. So I don't think there's going to be much change.

Thanks. And then one of the follow-up on HomeSafe, you know, good to hear. No impact to your targets from a little bit of a total restart there. Just to clarify, do you think you're still on plan with the, I guess, underlying 25 assumptions for HomeSafe revenue from the Investor Day? Or is that maybe a little bit below plan now and that's being offset by other wind across the portfolio or wind blast?

No, it's very much on target. As I said in my prepared remarks, we took quite a conservative view through 25, 26, and 27, in fact, in terms of the way the program wraps up. And certainly now we've kind of opened the aperture, if you like, for the systems testing to really progress the domestic moves. I think if there's any surprise, I think there's opportunity to the upside. It is a new program, however. But I do feel that we've got the right sort of numbers on a conservative basis within the 25 long-term target guide that we gave in the rest of the day. And obviously, more will come out as we guide for 25 in February.

Our next question comes from Michael Dudas with Vertical Research. Michael, please go ahead.

Hello Jamie Stewart, Mark.

Hi Mike.

Hi Mike. The so with the the positive progress you mentioned with with the energy projects in the Middle East and Saudi in particular, maybe could show like what type of workforce? How is it being staffed worse? It has been maybe in 24 and how that may ramp in 2025, and I assume that's going to be used throughout many of your offices globally. And are you given some of the opportunities that you have in your current opportunity, can you see further on-contract or bookings over the next 12 to 18 months and some of these other LNG or related opportunities there?

Yeah, I mean, that's a really good question, Mike. So for LTC program, that will be led at the Houston office, supported by predominantly the Saudi office. As you can expect, as things move into Saudi Arabia, the work on the gas developments offshore are actually led from a Leatherhead office, again, supported by Saudi and Chennai in particular. The LNG projects that we are looking at are really... again led either out of, particularly out of Houston or Leatherhead, but predominantly in that case supported out of Chennai in our India office. And so it really is a global impact and allows us to de-risk concentration. I would also say that in terms of the opportunity when we're doing front-end design, then obviously the following opportunity is clear depending on where you are in the world. I think if it's in the Middle East, it will likely be maybe broader packages, but really in the project management realm. If it's in places that are not the Middle East, there's different contract vehicles that suit our risk profile. But in all occasions, I think being involved early in the project performing well often means that you actually have a role going forward. That's why we put a lot of emphasis and explain to the market where we sit and sort of pre front ends concepts and front end designs because it really positions us not only for for for broader roles, but also around understanding technology opportunities and things like that. So hopefully that helps.

It does do it. My follow up is that you mentioned in your prepared remarks about, you know, some of the energy transition opportunities may be more uncertain because of the US elections. Maybe turning to the government side, any change into your thoughts on what you've said, given your significant business units and government solutions relative to what you're seeing out of the Pentagon or what anticipated change could occur? Anything that would cause any even minor change to your thoughts, given how things may look like to turn out?

No, I don't think materially, Mike. I think that there's strong bipartisan support around military spending and the Department of Defense budgets, as we've seen in the past. I think the areas where we've positioned the business, whether that be in military space or in the Pacific or looking at hypersonics or cyber or even civil space with NASA, are going to be strongly supported regardless of how the elections turn out. We're feeling pretty good at that. There's usually a question on what happens in Europe on low cap, but we feel that that's moving more to, will move more to a sustainment type solution, depending on what happens with Russia and Ukraine. But obviously that's not a near-term resolution we see, but you never know. But I don't think there's going to be a material change in where the priority spending is going to be, and I think that we will guide appropriately as we go into 25, and we're pretty confident of our targets of growth that we presented on our investor day.

The next question comes from Stephen Fisher with UBS. Please go ahead, Stephen.

Thanks a lot. So, Stuart, you mentioned the potential election impact on Lake Charles. I'm just curious, what are some of the scenarios that could play out with that project based on the election? And kind of what would the timing implications be for those various scenarios? And I don't want to put words in your mouth, but it sounded like the answer to Andy's question was that maybe in the event that Lake Charles is, say, delayed by a longer period of time, say a couple of years, you still think you could have enough work in STS to hit those 11-15% targets. I don't want to put words in your mouth, but just clarifying that that's what you're messaging.

So in terms of the election and LNG, as you know, there's a pause in LNG projects in the U.S. If the Democrats remain, there is strong indications that some projects will be released for going forward as long as the meet certain probably environmental hurdles and things like that. And we feel that Lake Charles is very well placed to be part of that cadre. If the Republicans go forward, I think their stated positioning is to really go faster. And as a consequence of that, I think that the project will go faster. And that was really my comment there. The FID that we gave you in the second half of next year, is probably based on the conservative view. It could go quicker than that, but again, there's obviously, as I said, wood to chop there. In terms of our ability to look further afield for looking at our pipeline and the way that we'll perform, I think there's absolute credibility in the numbers we've put forward, regardless of timing of late trials. And so, you know, it's just a You know, we had one particular analyst who raised the fact that, you know, it would be difficult in an LNG market to replace what we're doing in Plaquemines, and we've announced four associated LNG projects in one quarter. And so I really want to be strong on that point. And, you know, you can see the opportunity set that's been realized in a very short order. So I think there's going to be more opportunity, not less. And certainly energy demand is not reducing. It's increasing, particularly in the global south. So that's really my answer to the question, Stephen. Unless, Mark, you want to say something further?

I think you covered it beautifully well, Stuart. Thank you.

Terrific. And then maybe just on the Saudi side, just curious if you have a sense of how fluid that situation is with their programs there. Like, can we take this now, take this PMC contract to the bank, if you will? Or, you know, could it still change either to the upside or the downside? I know you're talking to Mike Judas about some other opportunities, but I'm just wondering, is this thing now kind of locked in?

Well, they will make a final investment decision, I believe, Steve, when the EPC pricing comes in after the front end designs are completed, but obviously we're at pre-feed and feed and it'll take a couple of years to come through that exercise. Right now Aramco are committed and so we feel very strongly that this is a very solid set of bookings, but we won't book it into backlog until such times as we reach the various milestone gates. but it was really to just give you an indication of our role on LTC. The fact that a Ramco viewers has really a very strong capability and we've got a very strong relationship, of course, and we've got that broader CPMC role, which actually is bringing a whole set of different skill sets that have never really been delivered under the PMC environment before, and KBI was chosen to do that. So I think, ultimately, you should take it as really positive news. We're trying to give you a sense of the scale. It's a multi-year program, so really underpins our long-range targets. And yeah, we're feeling really good about it.

The next question comes from Jerry Riewich with Goldman Sachs.

Jerry, please go ahead.

Yes, hi. Good morning, everyone. Sir, I'm wondering if we just take a – hi. If we just take a step back, you know, maybe five, six years ago, the risk terms on a lot of these LNG projects and other large-scale energy projects weren't very attractive to you folks, and now the wind rates have been really attractive for you folks, including Lake Charles LNG. Can you just talk about what's changed over that timeframe in terms of industry discipline and, you know, that's enabled the opportunity for you folks to have such a high win rate with acceptable and attractive risk terms for KVR?

Yeah, I mean, we've been very clear we're not taking lump sum EPC risk and we don't take construction blue collar risk. And we've been very true to that. We're not going back to the future, if you like, in what we're doing here. I think that particularly with VG and the success of Venture Global in their first phase and in Plaquemines, I think there are certainly new models that new customers, new developers are looking at because it allows them to carry the contingency and manage the risk directly. And it also allows them to be heavily engaged in the decision-making. And that doesn't suit all customers. There's still lump sum EPCs out there, many of them you'll know about, and we're not interested in them whatsoever. So I just think the market is realizing there could be a different way. It doesn't suit everyone, but it does suit some. And where it suits them, we're actively engaged. In the Middle East, where there's a project management contract, a front-end design with PMCs, where, of course, that suits our model very, very well. and we'll continue to chase those types of opportunities. But I think the two things, I think really I guess the intent of your question, is there a market for the risk profile that we have appetite for? Absolutely, and I think we've proven that. And secondly, are we positioned well enough globally to take advantage of that? I think the answer, and we've demonstrated it, put meat on that bone in Q3 in particular is absolutely yes.

Super. And can I ask, on the heritage tech pipeline, could you just talk about what you expect to book over the next couple of quarters in areas like ammonia and plastic recycling? I know there's a pretty strong visibility on the pipeline. And when you expect bookings to play out, can you just expand on what that looks like over the next couple of quarters?

Yeah, we don't. I mean, I think that we're very excited, obviously, with SAF and plastics recycling as we start to look at the pipeline of opportunities and where the markets are going for those. I think, as I said in my prepared remarks, the catalyst for change in terms of active final investment decisions on the dozen or so licenses we've already sold for hydro PRT is really down to the performance of what happens at Wilton or in Korea or in Japan. And so I think we'll update the market more on that as these start to produce product at year end and slightly into 25. So very excited about that. I think the bookings will come later in the year associated that with Jerry, just given the timing. But very, very strong pipeline there. In terms of ammonia, I mean, it continues to be an attractive market. The ammonia pricing came down, as you know, through the course of the year. But there's still a lot of interest in actually moving forward, particularly in the Middle East, around the fact they've got very attractive gas prices. They're looking at market share. There's also growing demand for fertilizers, as well as commitment around positioning for hydrogen as they move forward. So I think as we go into 2025, we expect to see continued buoyancy in the ammonia market. Exact timing is very difficult to tell, but I think the market itself remains very attractive.

The next question comes from Sanjita Jain with KeyBank Capital Markets. Please go ahead.

Hi, good morning. If I can ask one on the LTC project that you said was suspended by Ramco, If Aramco changes its priorities to move more investment to other parts of Asia, would you be able to follow them there for similar projects?

I mean, it depends on the contractual structure, but yes, if it's a front-end design PMC, of course we can. And we've got offices in Asia that could support that depending on where it is. I think historically they've done more in China and increasingly looking at India. They've used SAVIC as really their overseas investment vehicle. Remember that Aramco owns the majority of SAVIC, at least 50% if not more. So I think, yes, in theory, but I don't suspect that's going to happen because I think that, as I said, the reason I said what I said in my prepared remarks was that they are looking to decarbonize in the kingdom. They're trying to use gas to produce power, which At the moment, they burn crude, and the utilization of crude into petrochemicals is value-added over time, and that's where they're pointing the investment dollars. So I don't think it's just an investment in liquid to chemicals globally. I think there's a strategic and a sustainability play in Saudi itself that's driving these investments.

Got it. I know you've referenced the long-term guidance a couple times, but I think this project was in your long-term risk-adjusted guidance that you gave us at your analyst day. So I just want to know how you're thinking about that long-term guidance without this project in it.

I'm sorry. I'm confused.

On your analyst day, you gave us long-term guidance, right, which included this LTC project on a risk-adjusted basis.

It does, but remember, we've got a very prominent role on LTC, which is the coordinating PMC, which I said would be $70 to $100 million through pre-feed and several times that value through execution, which is aligned to a multi-year project, so very aligned to a long-term target. So we've got a very prominent role in LTC. That's why I spent quite a bit of time talking through that particular project. There's been a bit of a black box up to date, and apologies for that. But we were not allowed to say anything by the customer, but now we can.

The next question comes from with TD Cohen. Please go ahead.

Oh, hey. Good morning, guys. Burt Lazarin- Curious on link West there was some language in the in the briefing about small business award of curious do they have a lot of small business set aside work, if so, can you quantify how much and how that runs through or runs off.

Burt Lazarin- yeah they don't really have any small business set aside, we obviously do to start through the acquisition so it's a little feature at all Gotham.

I'll just expand the work we refer to as SBIR3. So that is not restricted to small business. It reflects, you know, initially was perhaps under that, you know, set aside type of construct. But now it's preferential type of contract vehicle. It can put money to work quickly. It is fully available to large businesses. And it largely is done on a sole source basis to progress and commercialize of the technologies that are at play that, you know, started off small and have become something bigger. So it's really an attractive type of vehicle for not only Lindquist, but a part of the KVR group as well.

Oh, thank you. That's helpful. And just last one for me on, you may have addressed it, I joined late. CR, the budget CR, I mean, what is your expectation for bookings over the next couple quarters, if in fact,

I mean, I think we've got enough in-flight being looked at. We've got a number that have been awarded under protest, and we don't talk about them until the protest is resolved and quite sizable. So we, I mean, assuming they come in our favor, and you never know, of course, Gotham, the way the protests go, but I think bookings will remain pretty strong as a consequence of what's in flight. and obviously there'll be some delays with CR, but we don't expect it to in any way change what we think we will guide to for next year, aligned with our long-ways target.

At this time, we have no further questions, and so I'll turn the call back to Stuart Brady for final remarks.

Thank you, Emily. And thank you again for listening. And thank you for your interest, as always, in KBR. I think another terrific quarter, a double-digit growth across all key metrics. Really, it's not just revenue. It's actually delivering that revenue integrated profit with enhanced margins. So really a terrific effort by our people all across the world. So yeah, thank you again. And I'm sure we'll be on calls later today and tomorrow and through the course of the next little while. So thank you very much.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.