Hello everyone, welcome to KBR, Inc.’s Third Quarter 2022 Earnings Conference Call. My name is Charlie, and I will be coordinating the call today. I will now hand over to your host Jamie Kubiak, Jamie please go ahead.

Good morning and welcome to KBR's Third Quarter 2022 earnings call. First, I’d like to introduce myself. I’m Jamie Kubiak, the new Vice President of Investor Relations for KBR, taking over from Alison who’s moved into a leadership role in our sustainable technology business. I’m excited to be here and for the opportunity to serve you. Joining me are Stuart Bradie, President and Chief Executive Officer, and 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 our investors 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 presentation. I will now turn the call over to Stuart.

Thank you, Jamie. And welcome to the KBR team. And thank you all for joining us this morning. I’d be remiss if I also didn’t take the opportunity to thank Alison; she's done a terrific job for us over the last few years. Now on to Slide 4, which depicts our zero harm program, featuring 10 pillars across the ESG and sustainability spectrum. These pillars and the underlying behaviors that make up the program are really important to our people and are an integral part of our values and culture. Our recent sustainability report is now published and available on our website. Some key highlights from this year’s report are shown on the slide, illustrating our unwavering commitment to strong ESG performance and our focus on taking care of our people, the environment, and the communities where we live and work. This commitment is evident as we deliver shareholder value. Moving on to Slide 6, we had a solid revenue growth in double digits with aligned earnings growth, resulting in strong margin performance with free cash conversion well above one. Trailing 12 months book-to-bill was 1.3 for the group, with STS outperforming. We continued with our balanced capital deployment strategy, closing the VIMA acquisition, enhancing our capabilities in digital transformation, and repurchasing about $50 million of our shares this quarter, which totals about $125 million year-to-date. As you may recall, we over-performed in Q1 and raised guidance; we also exceeded expectations in Q2 and again in Q3, both in EPS and cash. Therefore, we will be raising guidance again today, more on that later. Regarding the market, STS has several tailwinds, which include the energy trilemma of energy security, decarbonization, and high energy prices, which remain a reality. The outlook is strong, especially with government legislation in the U.S. introducing incentives for sustainable projects and hydrogen. Our solid contracts for this year and our EBITDA and earnings momentum into ‘23 and beyond is truly exciting.

Thanks, and welcome to Jamie. A special thanks to Alison for a job well done. Now, while Q3 was a clean quarter, the performance tracking is really strong. Despite global instability, high inflation, and rising interest rates, KBR delivered outstanding results across all parts of the business. Revenues were up 11% over Q3 last year on an Ex-OEW basis, reflecting organic growth in both segments and contributions from Frazer-Nash and VIMA. Margins were solid due to excellent execution and a favorable mix. Operating cash flow for Q3 was terrific at about $120 million, totaling $336 million year-to-date, representing off cash flow conversion of over 115%. This cash flow enables M&A, debt reduction, and increased buybacks. Moreover, we’re focused on profit growth, strong cash flow conversion, and reducing our cost of capital. Segment details on Slide 11 indicate that STS achieved 16% organic growth and earnings growth over 60%—a stellar performance. In the government segment, while appropriations for government spending remain strong, we have seen some delays in U.S. outlays, largely due to support efforts for Ukraine. Margins here reflect good performance at 10%. Capital deployment continues with approximately $70 million for the acquisition of VIMA and almost $70 million returned to shareholders via buybacks and dividends.

Thank you, Mark. On Slide 14, KBR remains well-positioned relative to our long-term themes favoring our solutions and technologies. Our STS business has exciting near, medium, and long-term market tailwinds that, along with attractive backlog and EBITDA, enhance our overall performance. Both our STS and government businesses continue to show sustainable growth, aligned with market priorities and funding increases. I would now like to thank our amazing people, whose efforts have enabled us to once again increase our full-year guidance. Thank you, and I’ll now turn it back to the operator for questions.

Thank you. Our first question comes from Bert Subin of Stiefel. Bert, your line is now open.

Congrats on the quarter. I guess for my first question, your guidance implies earnings decline quarter-over-quarter despite the solid tailwinds you outlined. Can you just walk us through why that’s the expectation?

It’s a standard seasonality issue. If you look back at our history, Q4 typically sees seasonal declines due to holidays and year-end factors. While the tailwinds are strong, these factors have a major impact on revenue. This shift is expected due to typical patterns that occur during this time of year.

Mark, I was referencing quarter-over-quarter looking from Q3 to Q4, is there an FX headwind that’s assumed in that guidance or just typical seasonality?

It's just seasonality. The business has performed extraordinarily well, outperforming expected FX and interest rate headwinds. Our guidance indicates a typical seasonal adjustment.

Just my follow-up, can you provide any update on HomeSafe? I know the expectation was for an October decision. Do you think that timeline is extending? Or should we hear something soon?

We expect to hear something hopefully this week, but I can’t guarantee it. The state runs out at the end of October, so we should receive an update shortly. We've been preparing for transition despite the uncertainty.

So if we hear a favorable decision this week, the nine-month transition clock would start at that decision date?

Yes, that is correct. The client would be keen to initiate promptly, and we will be ready to move forward. We have made significant advancements in preparing for this transition.

Thank you. Our next question comes from Jamie Cook of Credit Suisse. Jamie, your line is open.

Hi, good morning. Nice quarter. For HomeSafe, are you concerned about the impact on ’23 earnings with the project ramp-up timing being later in the year?

The timeline will be dictated by the project’s initiation. If it begins later, we would not expect significant contributions until Q4, which needs to be factored into future earnings expectations.

Regarding contributions from Plaquemines, while we cannot discuss specifics, the overall STS performance is positive, and the project is growing our sequential earnings.

Thank you, could you speak to the growth outlook for your space portfolio across civil, defense, and intelligence?

For commercial space, growth is modest at present. However, military space is expected to show double-digit growth, particularly due to increased funding. Civil space will likely see single-digit growth depending on award timing.

Combining all three areas, we believe the total size in space could be approximately $1.3 to $1.5 billion.

Our incentive compensation is aligned with our focus on profitability, emphasizing cash flow and sustainability as key metrics. This aligns with our objectives and the needs of the business.

Great, thanks. Good morning. I’m interested in the organic growth metrics you mentioned earlier. What are the Q4 expectations?

We expect organic growth guidance to be in the range of 6-9% CAGR going forward, consistent with our long-range expectations. However, we do anticipate typical seasonality in Q4, which may affect overall growth rates.

Thank you. Our next question comes from Andrew Kaplowitz of Citigroup. Andy, your line is open.

With increased exposure in the UK from recent acquisitions, could you provide insights on performance and expectations in that region?

We are integrating VIMA and Frazer-Nash effectively and seeing strong growth with their recognized brands. The UK government is increasing funding for defense, which is advantageous for our operations, so overall visibility is good.

Can you remind us of any recycles that are left for this fiscal year? And as you look towards 2023?

None for this year. We're through all significant procurements, and the primary focus will be on 2024 moving forward. We have ample coverage for 2023 already.

In our guidance for 2023, we anticipate considerable work under contract. We cannot disclose exact numbers yet, but we have strong coverage already.

Interesting to see a consistent run rate in the GS segment. What should we anticipate for revenue movement in the coming quarters?

The current visibility suggests stable growth, driven by our existing contracts. Despite seasonal fluctuation, we expect a steady performance across major projects and operational segments.

Can you expand on the heritage tech performance regarding the increase in green technology bookings?

There is certainly more emphasis on our green technology offerings, and we anticipate an increasing portion of our sales to come from this area moving forward. It's a naturally aligned growth segment for us.

Thank you. At this time, we have no further questions. I’ll hand it back to Stuart Bradie for any closing remarks.

Thank you for your interest in KBR. I would like to reiterate that we've outperformed operational expectations and are maintaining strong resiliency in our business amidst current market challenges. We are extremely proud of our team's performance. We look forward to further discussions.

Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines.