Kbr, Inc. Q3 FY2023 Earnings Call

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. It's my pleasure to now hand you over to your host, Jamie DuBray, 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 Bradie, 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 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 earnings presentation. I will now turn the call over to Stuart.

Thank you, Jamie, and a warm welcome to our 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 in which data is generated in space to enhance our environmental understanding of what is happening on our planet. And this provides 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 defense technologies. And I have to say, it's pretty cool stuff. Our people really do amazing things that matter every day. So, on to 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 double digits since this time last year, which I think is a good indicator of managed, sustained growth in the 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 group and myself have all reviewed the six final submissions, and I have to say they were absolutely terrific and we will certainly be taking a number of their ideas and solutions forward. I think it's truly a value-add process. Also in a world where there is more working from home, and thus a greater risk of creating silos, this is the added benefit of connecting people and fostering collaboration across non-traditional boundaries; very, very successful. 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. This recognition, I believe for the third consecutive year, 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 unparalleled commitment to health, safety, security, and to the environments they are working in, looking after themselves and those around them. The statistics really speak for themselves, and they are truly best in class. This obviously helps with recruitment and is a very clear example of our values-driven culture, and it's also a key differentiator with clients and partners around the world. Now, as Zero Harm is a broader ESG and sustainability program, internally we link our activities to the UN Sustainability Development Goals. 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. Just to give you a flavor, KBR today runs the combat water supply for the UK military. We manage 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, and modernizations of various cities' water and wastewater infrastructure. We engage with local communities and schools to educate on plastics in the oceans and organize river and beach cleanups, et cetera, through our One Ocean program. You've seen that before. Just as we did for space sustainability, this gives you a different lens into KBR. On to business growth on the bottom left, we have a really strong booking quarter reflecting continued momentum as we move into 2024 and beyond. As expected, our work under contract will allow us to finish strongly this year is over 95%. Now onto the financials at a high level, we achieved 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%. 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 companies out there, but our people really stepped up once again. Mark will cover other positive activities in cash in a moment, which all help to provide deployment optionality. As promised, and of course linked to cash, one subsequent event of note is that we retired the remaining convertible principal of $250 million in cash on the first of the month as it matured. That was the first of November, a clear demonstration of our belief in the upside potential of KBR. Now, on to slide seven, the markets remain buoyant across the energy trilemma, as we've discussed previously. Ongoing geopolitical instability only adds to this, particularly in the energy security area. 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 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 have been awarded the world's first commercial ammonium cracking project with Daesan in Korea. This project involves 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. 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 significantly increase demand for ammonia production, where we, of course, hold a very high market share. In the UK, we are deeply engaged with EET Hydrogen and the UK's leading industrial decarbonization 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, combining our innovative decarbonizing IP with best-in-class engineering services and digitalization. Finally, in the energy security market, we believe gas is the transition fuel, where 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. On to government, the market in the U.S. continues to be robust as we look beyond with budgets in critical areas and emerging technologies growing, focusing 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 and the need for greater multi-government collaboration, such as AUKUS, emphasizing the significance and value of our global GS segment, as we play a critical role in addressing these challenges. We believe 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. You may recall GS International had a strong booking last quarter, so the whole segment is well positioned as we move into 2024. We've highlighted several awards for the quarter in our science and space business. In total, these awards are worth well over $2.5 billion and importantly, are all multi-year contracts. With these awards coming through in Q3, and with the IMOEC recompete increasing in value by several hundred million dollars, as well as OMS and Cs both being additive as they 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 defense and intel, we've had several key awards in the quarter, some real nice wins on the intel side with customers like the NRO, but unfortunately, we can't say too much more about these. It was also nice to see awards under the IAC-MAC contract vehicle pick up cadence in the quarter. Similar to science and space, our defense and intel business are in really good shape for growth as we move into 2024. 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 Bolt 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. Although not specifically shown in 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% organic growth in Q3, we also finished the quarter with record high backlog and options since our transformation. This is indicative of great momentum and demand across all of KBR. Not to forget on HomeSafe, as Transcom leadership stated 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. Transcom and ourselves are fully committed to delivering this via HomeSafe from day one. Thus, we are jointly adopting a careful and calculated approach to ensuring this outcome. We have 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 commence in Q1 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. As we've always said, given the uniqueness and dynamic nature of the markets and businesses that we operate in, there are many ways to meet our targets. Interestingly, the over-performance of STS will fill the EBITDA we planned for HomeSafe in 2024. If we assume that we do get started with moves in 2024, we should be in real good shape from an EBITDA perspective at the group level. 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. In short, KBR continues to move up market, increasingly playing in the knowledge economy, growing EBITDA, delivering strong cash, and truly performing. We have secured the right work and exciting well-funded verticals to keep on pace to close out '23 and maintain 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?

All right. Thank you, Stuart. Hello, everyone. I'll start on page nine or slide nine. We're certainly pleased with our team's ability to deliver strong and well-rounded performance in the third quarter. As you see in Stuart's remarks, revenues are up 9% all organic, reflecting a balance of ramp-up on recent wins and production of on-contract growth across both segments. Adjusted EBITDA was up the same on constant margins at the levels we expected. Focused program execution is required to deliver these healthy margins. I've said that before. This continues to be the case across all of our operations in Q3. So, a big shout-out to the people who constantly deliver on this front across KBR. Amazing. Adjusted EPS grew 15% to $0.75 per share, driven by the EBITDA growth and net favorable below-the-line items compared to last year. Voluntary expenses were higher year over year as expected. The team really pulled together to generate strong cash flow and also debt reduction actions which kept financing costs in check. While effective tax rates are also trending up a bit, we did have a favorable resolution of an R&D tax credit which kept us in line with our tax rate guidance as well. Our treasury and tax folks really did a superb job mitigating the more challenging interest and tax environments that we have today. I just mentioned cash flow was strong again in Q3 at about $90 million, with year-to-date adjusted operating cash flow of $380 million, reflecting a conversion ratio of approximately 125%. Quite good! Consolidated DSOs improved by two days on increased focus by the team across the board. This will continue to be a focus as well. Free cash flow year-to-date is $320 million, and I'll remind you, CapEx is running about twice the normative rate this year due to two specific project requirements. So that's the big picture for the enterprise results. Now, on to slide 10 for segment performance, starting with SPS, we're seeing tremendous growth and profit margins. In addition, while not shown here, SPS is generating excellent cash flow as well, with year-to-date free cash flow conversion of well over 100%. This entire segment runs on negative working capital. We've said that before, and that remains the case. Top-line growth was almost 30% and balanced across technology and sustainable services. EBITDA margin was 21%, with EBITDA totaling just under $90 million. As is evident in Stuart's remarks back on slide 7, we're seeing high demand and increasing adoption of our proprietary solutions and technology service offerings all around the globe. Over to government, organic growth was 4% in Q3, which is pretty consistent across the four business units. As Stuart mentioned, strong bookings in Q3 provide opportunity for improved growth prospects moving forward as we head into 2024. On to slide 11 in capital matters. With strong year-to-date adjusted cash flow of $380 million, effective cash repatriation actions, and with year-to-date adjusted EBITDA growth of almost 10%, at the end of Q3, we actually kept our leverage ratio steady from the start of the year at 2.0 times. That's really saying something after deploying over $200 million on buybacks, dividends, and $200 million on the convert and related warrants, $130 million on the legacy legal settlement, and higher interest costs. So, quite an accomplishment keeping the leverage ratio steady after going through all of that. Consistent with our messaging at the beginning of the year, our capital priority was and is to resolve the maturity of the convertible notes that mature November 1, and the attendant warrants which expire a little later. As Stuart just said, we did retire the note yesterday, November 1, culminating in a cash payment of $250 million. That was funded with $200 million of revolver debt and $50 million of cash on hand accumulated from cash flow. As for the warrants, there's an open window to seek early settlement of those in the next two months or so. Doing so will depend on what terms can be negotiated, so we'll see how that goes, but we certainly have the capital capacity to do so. On to slide 12 for forward guidance. While the numbers through Q3 suggest we are ahead of pace, including the raised EBITDA guide from last quarter, there is seasonality to factor in to Q4, including having fewer productive days due to holidays and things like that. With excellent growth, margins, cash flow, and EPS production embodied in our current guide, we're sticking to that outlook for the rest of the year. With all that's happening in the world in KBR, here's a quick update on how we're tracking toward our long-term 2025 targets. For things under our control, we are well ahead of pace on EBITDA and on pace for cash flow. For EPS, which is more influenced by external factors, achieving $4.75 EPS by 2025 is looking much harder due to the uncertainty related to the ramp up of HomeSafe and with interest rates now expected to remain high for longer, and all the implications of that. For the more controllable factors, we see our end markets as strong or stronger than our original baseline, and our ability to capture demand for our offerings remains the same. Government is on pace to meet our targeted EBITDA, and as Stuart said, SPS is well ahead of pace. We see this momentum continuing through 2025 and beyond. That's it for me for the quarter; pretty short report. I'll turn it back to Stuart to wrap it up.

Thanks, Mark. Great job! Just to emphasize what Mark said a few moments ago, our EBITDA trajectory is well ahead of pace, including associated cash conversions. However, there are headwinds due to external factors beyond our control, making the 2025 EPS target of $4.75 more difficult to achieve. With that, let me summarize the key takeaways that are within our control and are going really well. Firstly, we continue to deliver for our customers, our shareholders, and other key stakeholders through our people-centric, values-driven culture, consistent delivery, resilient organic growth, and increasingly so into the knowledge economy with another great quarter. Continued strong organic growth across all businesses and the group is a key takeaway. Cash management was absolutely terrific across many elements, as Mark said; repatriation of trapped cash, DSO reduction, interest management, etc. We have paid the convert principal in cash as we promised, once again doing what we said we would do. Responsible leverage and strong cash management gives us optionality on capital deployment going forward. That's another key takeaway. Bookings were strong across the group, especially in GSUS in the quarter. Now, with a light re-compete year in 2024, the inbuilt organic growth as a consequence of bookings happening in the latter half will deliver targeted growth into next year. STS continues to win work across the energy trilemma and energy transition with outstanding delivery, growth, and margin performance as you see quarter on quarter. The key takeaway here is strong bookings underpin continued momentum and organic growth into 2024. HomeSafe moves should ramp up in 2024, but likely at a slower pace than originally expected. We'll know much more by year-end earnings. However, we do expect STS to overperform, thus mitigating any shortfall, even that from HomeSafe in 2024. Finally, the key takeaway is that there are multiple pathways to EBITDA success. This is a result of our differentiated, diversified, global, and resilient business model operating across multiple verticals within the knowledge economy. Thank you again for listening, and I will now hand the call back to the operator who will open it up for questions. Thank you.

Thank you. Our first question today comes from Toby Sommer of Truist. Your line is open. Please go ahead.

Hey, good morning. This is Jasper Bibb on for Toby. I can appreciate that there's still quite a bit of uncertainty on HomeSafe here, but any additional color you could share with us on the ramp would be appreciated. I think with the expectation of the first moves happening in 1-2-24, is there an underlying expectation there for the share of total volume that you're going to be taking over at that point, and do you think it’s still feasible to hit the full revenue run rate at some point in 2025?

It's still not clear what the ramp is like, and I will try to be quite distinct about that in our prepared remarks. Is it possible we can still get to full run rate by summer of '25? Yes, it is. But until we get through the next few months and get to February, as we said, we'll have more clarity then. But yeah, it's difficult to say what's going to happen in '24. Could you get to full run rate by '25? The answer is yes. Is that guaranteed? No. And that's just the bare truth today. We're not pulling any punches. We're trying to be very upfront and transparent in that message.

No, that definitely makes sense. And then I think you said it was going to be harder to hit the 475 EPS target because of higher interest rates. Just curious if you could frame the relative headwind from those higher rates versus your initial plan? Like, is there an EPS headwind that you could tie to that? That's more specific. Thanks.

There are two factors. The $4.75 EPS target has the embedded ramp-up on HomeSafe, which may or may not be achievable, as we just talked about. In terms of interest rates, I think the difference that has happened over the last three to four months in particular is the yield curves now show that interest rates are higher for longer. They were coming down. If you went back a few months, the yield curves suggested they were coming down, which means, of course, it's accretive to borrow money and then buy back stock. And at the moment, that math is on the edge. So, obviously, if you're using free cash flow, it's accretive; if you're putting it on your balance sheet, it's a more difficult decision. That's really the message around that and the implications of the higher interest rates. Mark, any thoughts?

I think it’s an opportunity just to clarify that, absent any compelling M&A opportunities, we intend to use all of our free cash flow for buybacks. We think that's a terrific long-term return for our shareholders. But as Stuart suggested, these days to leverage up and buy back stock is kind of a push from an accretion perspective. That was not our assumption in the original targets when we had lower rates. All things operationally are really strong, more strong than planned. However, there’s headwind on tax rates and FX since the derivation of those targets, but not that dramatic relative to the interest rates, which were the biggest move and the HomeSafe timing, which is uncertain.

Appreciate the detail there. Thanks for taking the questions, guys.

Our next question today comes from Bert Subin of Stifel. Your line is open.

Hey, good morning. Stuart and Mark, thanks for the question. Maybe just to start out, Stuart, you said STS is expected to overperform next year. How should we think about the trajectory there? I think last call you mentioned that you expected sort of double-digit organic growth for a while. There could be some lumpiness in that over time. I mean, right now you're growing 28%. Is there a situation where you just continue to grow at an elevated level in '24? And then as we think about '25, I mean, that was supposed to be $300 million in EBITDA by then. Is there any update you can give us on that as we think about, I guess, the new '25 target?

I don't think we're going to get out over our skis on a '25 target today, but what I would say is that we are well ahead of pace. You're quite right. We hit a $300 million target. We're going to blow through that this year. We raised EBITDA guidance last quarter, and we're ahead of pace on that. The relative performance of STS to KBR year-to-date is approximately 40%, and the quarter it's even higher. Its contribution and value to KBR is becoming clearer and clearer. Hopefully, that reflects in the multiple as we move forward in terms of that contribution. As we look into next year, double-digit growth will be coming off a much higher base, clearly outpacing where we originally thought we would start from. That’s probably the best way to look at it. We’ll have an investor day in May next year and we will certainly be realigning those targets by then. We should also have a lot more clarity on HomeSafe by then too.

Just to clarify there, Stuart, do you say it’s a higher base and so double-digit growth will be a challenge, or do you expect double-digit growth off of a higher base?

No, no, no, no, no. We firmly expect double-digit growth. My point being it's a much higher starting number that you put the double digits to.

Got it. Okay, thanks. And then just as a follow-up on the HomeSafe side of things, I mean, I think there was some news out there in September that there was, I guess, challenges or concerns on Transcom integrating Mill Move with HomeSafe Connect. It seems like you guys are pretty ready whenever they essentially say go. That expectation, I think, is still January start and then a sort of sequential ramp from there. Can you just give us some of the moving parts or like the things you're watching to get that turned on and revenue started there?

You're right. It's the integration of the systems and ensuring their readiness, and we don't want to falter in any way. Transcom is correct to be considered about how they ramp up, and we do expect moves in Q1. I don't think it will be January 1; it will likely be a little bit later in the quarter. Directionally, I'll reiterate that the relationship, the passion around this from both sides to get it right is absolutely there. I'm not concerned about that at all. It's all about being sure that when we start, we can ramp up quickly and not falter. I can't say more than what we said in our prepared remarks because I don't know anymore. This uncertainty is just where we are at the moment.

Appreciate the color. Thank you.

The next question today comes from Gautam Khanna of TD Cowen. Please go ahead.

Hi, everyone. I have two questions. First, regarding HomeSafe, I’d like to know about your confidence in execution, considering some logistics partners might have agreed to contract terms before the significant inflation we experienced last year and part of this year. How confident are you that these contracts won't need to be renegotiated? I also have a follow-up question.

We have support from the supply chain to deliver the initial ramp and the commitments around that. Even if we started tomorrow, never mind in a few months, I think the heat has come out of that market somewhat, and Transcom are thinking that those rates should naturally come down. In a sense, we feel we have the right partners, the right people in the supply chain, and we're feeling really good about that. We’re not really concerned.

Okay. And then just a quick follow-up, on the 2025 $4.75 target, knowing what you know today, what is the variance, earnings per share variance, to that from interest expense, a higher share count, etc.? Take HomeSafe out of it, which I think was about $0.50, right, to the target when you updated for the HomeSafe win. Where do you guys stand? Is it $4.25? What can you see?

It's tricky because we don't know the ramp on HomeSafe. As Mark was alluding to in terms of free cash flow, we will use for buybacks. There was a big piece of that in the initial calculation. So, Gautam, if you look back, when we set our targets initially, it was $4, not $4.25, and then $4.75 with HomeSafe. There were assumptions surrounding that around interest rates and the accretion dilution mass around buybacks and average share prices. Everyone forgets about those assumptions, and everyone just remembers the EPS target. The things we can control are probably a better measure; I think EBITDA is the best way to project our future. That doesn’t mean EPS, particularly short-term EPS, will not be part of executive compensation, but longer-term EPS with such volatility is something we’re probably going to move away from and think more about EBITDA.

And do you have an updated EBITDA target for 2025, recognizing HomeSafe as ex-HomeSafe?

Stuart was very clear in his remarks that we're ahead of pace by a lot in STS and on pace for government ex-HomeSafe, and we still believe HomeSafe is there. It's a matter of time. However, putting a precise date in 2025 for HomeSafe's contribution is a bit difficult, but we still are optimistic it will deliver the originally intended EBITDA over time once we get through the first moves and ensure that the quality that was intended can be delivered. The great news is that the most important driver, which is EBITDA, is ahead of pace. We haven't quantified that yet, but you can maybe do your own calculation on STS's run rate and where they're heading trajectory-wise, which we think will continue.

As we move into 2024, we're very confident in our EBITDA targets. Meeting those targets is the pathway we explained, with STS performing well opposite any shortfall in HomeSafe. We're not worried about that pathway.

Our next question today comes from Michael Dudas of Vertical Research Partners. Please go ahead.

Good morning, Jamie. Mark, Stuart. Can you hear me?

Yes, great.

Thanks for the morning, everybody. Just wanted to maybe move towards STS. There was a lot of news the last couple of weeks of the funding in the U.S. for hydrogen hubs. The hydrogen market continues to get visibility and news flow. Can you explain a bit about how KBR and its clients are thinking about that and how that could drive some more opportunities on top of what you've already described in ammonia and hydrogen business for the next several years?

Of the $7 billion allocated, I think half of it or so will be spent in construction enabling about 68 hydrogen hubs, targeted for 2030 to be online. That said, we have customer sets all around the world, some of which are moving faster with greater urgency. We've discussed hydrogen cracking and our activities in that area, and as you well know, we're positioned in hydrogen alongside ammonia. The U.S. stimulus is a good part of the story, but there's great growth outside the U.S. as well. This presents a terrific opportunity for KBR, and we are busy elsewhere across the globe, which provides us credentials and capability to bring back into the U.S.

The next question today comes from Jerry Revich of Goldman Sachs. Please go ahead.

Hi, this is Adam on for Jerry today. Thanks for taking my question. Wondering if you could help us understand the growth outlook by platform for 2024 and government solutions, how you're thinking about that, excluding HomeSafe and particularly interested in how you perceive the international piece, given some of the things going on in the world.

Excluding HomeSafe, growth is expected to be somewhere between five and eight percent. We’re well aligned on that. As I mentioned in the prepared remarks, science and space are in a solid place with recent wins, particularly the takeaways and the additional scope and contract values. We feel strongly about organic growth there. In our intelligence community segment, we have secured quite a bit across our DNA portfolio, and there's more expected in Q4. Our analysis shows slight softness recently, but with the recent task orders all being multi-year contracts, we expect that to ramp back up as we move into next year. The international piece is interesting; it’s probably growing faster than most, with expectations of double-digit growth due to current global dynamics and stronger cooperation.

Great. Thank you.

The largest news in STS is probably coming from Saudi Arabia. They are expected to be the largest growing economy for the next couple of years as they are putting substantial capital to work to diversify their economy. They are halting burning crude for power, transitioning instead to gas, and we are heavily engaged in that.

Thank you so much.

Thank you. We have no further questions in the queue, so I'll turn the call back to Stuart Bradie for any final remarks.

Thank you.Thanks for listening this morning and for your questions. You can ascertain where we've got control over our destiny. We're feeling really good about the Company, the bookings, the performance, and the margins. We look ahead into 2024 with bookings very strong in Q3, and obviously some prospects we discussed in Q4. We feel positive about continued momentum. We'll be very clear and truthful about not pulling any punches related to uncertainty on HomeSafe and its ramp. We're feeling good about the program in general, so please take that to heart, but we don't know what the ramp will look like. We expect to start in 2024 and ramp up over time, but until we get clarity, it's hard to provide more detail. There is a path to reach full ramp by 2025, but again, the path remains uncertain. That's a good place to leave it, and I'm sure we'll be talking to you one-on-one and others as we progress. Thank you for your interest in KBR, and we look forward to a strong finish to 2023 and a positive outlook into 2024.

This concludes today's call. Thank you for joining. You may now disconnect your line.