Kbr, Inc. Q4 FY2025 Earnings Call

Good afternoon. Thank you for attending today's KBR's fourth quarter and full year 2024 earnings conference call. My name is Tamia and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now ask you to pass the conference over to your host, Jamie Dubray, Vice President of

Investor Relations. Thank you. Good afternoon and welcome to KBR's fourth quarter and fiscal 2024 earnings call. Joining me are Stuart Brady, 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 full year 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.

Thanks, Jamie, and good afternoon, everyone. I will pick up on slide four. As you know, we start every earnings call with a zero harm moment. And in fact, this month, we are celebrating our 10th anniversary of a zero harm program at KBR. Today, I would like to highlight circularity and give an update on Moora's progress. Moora Technology is the global pioneer of a next generation advanced plastic recycling technology called Hydro PRT. And KBR is proud to be Moora's exclusive global licensing partner and preferred engineering partner, and of course, we're an investor in the Hydro PRT process itself. Now, there are three commercial scale facilities all being built almost in parallel. Moora's in Wilton, UK, LG Chem's in Korea, and Mitsubishi's plant in Japan. Now, the Moora and LG Chemicals plants have had several successful operational runs and both plants aim for commercial operations by March with key customers like Dow and Nestle looking to incorporate recycled feedstocks to enhance their sustainability in the plastics manufacturing. The facility in Japan is scheduled to come on stream a few months later. Now we're excited about what this means for the circular economy and to KVR of course. To give you a feel for the positive impact, over the course of the year the UK facility will recycle the annual plastic packaging waste of approximately 700,000 residents and replacing an equivalent of roughly 100,000 barrels of fossil oil. Quite impressive. So on to slide five and some key messages. We delivered very strong fourth quarter and full year 2024 performance, which actually exceeded our previous expectations. Starting with our financial performance at a high level, we delivered $2.1 billion of revenue in the fourth quarter and that brought our 2024 total to $7.7 billion, which is over the top of our guidance range. Now, this represents double-digit growth of 23% for the quarter and 11% for the year. Organic growth for the full year was 9%. We generated strong adjusted EBITDA of $228 million in the quarter and $870 million for the full year, also at the top of our guidance range. Due to a combination of strong execution and operational efficiency, we delivered 11.2% adjusted EBITDA margin, up roughly 50 basis points year over year. Now, we continue to successfully and methodically execute our growth strategy. We are winning work with new customers and in markets globally and are continuing to move up market with our acquisition of Lindquist. With our segment realignment and our leadership updates, which were the key topics of our webinar in early January, we are now more agile and better aligned to our markets. We will also highlight our resilient business model and alignment to strong secular growth trends more in a minute. Finally, we are issuing our 2025 Financial Outlook, which equates to double-digit growth at the midpoint across all guidance metrics, supported by discipline, strategic execution as we advance towards our 2027 objectives. Now on to slide six. I'll start with an update on our key contracts and recent wins, starting with HomeSafe. Following successful test moves in Q4, the ramp increased markedly in January this year. And now we're taking in roughly 300 moves per day from Transcom. With the programme progressing significantly, there is increased interest from new suppliers. The move volume has really just started in earnest, so we are in the early months of execution and bought as a 10-year transformational program. And both HomeSafe and Transcom remain completely committed to a successful transformation. Over to a joint venture supporting the Plaquemines LNG project. Our customer announced first LNG production in December, as you know, achieving this milestone just 30 months from its final investment decision which makes Plaquemines LNG one of the fastest greenfield projects ever to be built. Work is progressing well to deliver the fully planned capacity over 2025 and 2026. And lastly, with the executive order now reversing the LNG ban, the Lake Charles LNG project is advancing their off-takes and limited notice to proceed is anticipated by mid 2025 with final investment decision expected later in the year. We were pleased to announce a number of new contract wins during the fourth quarter and a few are highlighted here to deliver strong results in 2025 and beyond. The new administration has emphasized the need for technological advancements in the areas of unmanned systems, hypersonics, microelectronics, and directed energy. This $445 million contract win for the Department of Defense Joint Mission Environment Test Capability Program and our $88 million contract win for rapid prototyping aligns nicely with these priorities. And in particular, I think these wins demonstrate expertise in systems design, test, and interoperability. Secondly, KBR's market-leading ammonia process technology was selected for two new projects one in angola and one in kazakhstan which will of course produce fertilizer critical to supporting growing populations and we think this demonstrates our market leading position and really builds on our installed base of 260 facilities across the world bringing the number of ammonia projects we've won in 2024 to seven Lastly, KBR was chosen for several significant engineering and project management roles in the quarter, including Shell's Manatee LNG project, the Oman LNG project, and Saudi Aramco's Shaba gas increment project. In addition, KBR also signed a global agreement with BP for engineering and project management across their portfolio. These project wins demonstrate the momentum in the gas market and the greater need for energy security. And I think KBR is very well positioned to address this market through its differentiated capabilities and extensive global presence. In short, our book of business is strong and we ended the year with a 1.1 times trailing 12-month book to bill and over $21 billion in backlogging options. And one of KBR's strengths is that our portfolio offers multiple paths to achieving our growth objectives, allowing us to successfully navigate different macro environments. And I'll go into this more a bit later on. On to slide seven. Delivering on our strategy in 2024, so sort of doing what we said we would do. Now, our strong financial performance was supported by execution across the four pillars of our strategy, and we made significant progress on each area over the past year. Firstly, under Thrive and Expand, we secured a contract for the Lake Charles LNG project, a planned $10 billion plus project with our partner Technique. By effectively using the Information Analysis Centre's Multiple Award Contract Vehicle, IACMAC, we won over $1.5 billion of work as IDIQ. And this means quicker procurement, enabling more timely delivery of mission-critical national security needs for our customers, and a more resilient revenue stream for us. We also want to work with new customers in the Defense Health Agency, the Department of State, and with the Government of Iraq, where we started a five-year strategic partnership to help develop their future vision, including energy and infrastructure. And lastly, outstanding bid value-awaiting decisions climbed to over $17 billion in MTS, really delivering on our commitment to increase bid volume this year by over 50% plus. Second is to deliver innovation. In partnership with Geolith, we added a new proprietary technology called Pure Lithium, which enables zero-emission direct lithium extraction from produced wastewater, which is a typical by-product from oil and gas production. We recently announced that this technology was selected by Weardale for the demonstration plant in the UK. With the Naval Information Warfare Centre, we are integrating prototype components and designs into new or existing information warfare systems, including command and control systems, intelligence, surveillance, and reconnaissance systems, and cyber systems. We also launched a digital accelerator program and completed the stand-up and connection of our four digital engineering labs in Alabama, Maryland, Virginia, and Pennsylvania. This adds core modeling and simulation capabilities, and we're already seeing on-contract growth across several of our Army, Navy and Intel customers and now these are important enablers as the market continues to grow around interconnected systems and data. Our third pillar is to drive operational excellence globally. As we discussed earlier, we have delivered adjusted EBITDA margin expansion of 50 bits year-over-year, really down to strong project execution and operational efficiency. And as we described during a special webcast in January, we realigned our segments to mission tech and sustainable tech with the associated synergy and cost benefits, in so doing, making both segments more self-sufficient. Our fourth pillar focused on effective capital deployment, very important. And during the year, we deployed over $1 billion in cash. We returned nearly $300 million to shareholders through buybacks and regular dividends. And secondly, of course, we acquired Lindquist. Lindquist expands KBR's mission expertise, particularly in the military space domain and in the digital arena with advanced interoperability and model-based systems engineering capabilities. Now, these capabilities will be in high demand going forward, and this is evidenced by Lindquist's direct award contracts of over two billion dollars of available ceiling value over the next four plus years. So very exciting. Now we've included an additional slide in the appendix with some key details on Lindquist. So these actions are built upon our differentiated business model which I'll now cover onto slide A. KBR is positioned for resilience and growth and thanks to our unique business model and alignment with strong secular growth trends it really enables multiple pathways to achieving those objectives our model focuses on agile leadership customer-centric national operations that's really important in multiple countries across the globe domain expertise and elevated technology positioning and these strengths are supported by a capital-like structure strong cash flows, and cost discipline, leading to resilient financial performance. Now, in the chart, you can see our 2024 adjusted EBITDA mix, showing roughly 60%, 60% comes from non-US government customers, notably from sustainable tech and a sizable business with allied government customers in the UK, Australia, and the Middle East. The remaining 30% EBITDA, 30-plus percent EBITDA generation from the U.S. government is concentrated in serving mission-critical, operationally focused, and technology development roles in areas like military space, missile defense, digital warfare, and direct support to our warfighters, all critical. We believe our business is very well positioned with the new administration priorities. And most of the NASA work is the literal operations of human and satellite space missions, including those supporting commercial missions such as SpaceX, Blue Origin, and Axiom. And notably, less than 2% of our adjusted EBITDA relates to federal civilian agencies outside of NASA, so less than 2% opposite FedSiv. And now let me touch on how KBR is aligned to strong secular growth trends onto slide nine. Our strategy is to align with exciting, growing, high-end markets, as you know, where we are differentiated. Now, I won't read the entire slide to you, but you can see that our book of business is well aligned to strong secular growth trends so just picking a couple in u.s defense we are aligned to mission priorities of the new administration as we just discussed particularly our tip of the spear operational focus in international defense we're positioned for both resilience and growth from increased international defense spending and i'll remind you that kbr historically has supported both the UK MOD and NATO in overseas missions. As we've discussed many times, energy has real momentum and is a global priority, of which KBR is very well positioned in this market. And infrastructure includes strong tailwinds from broadening industrial base and diversifying economies, particularly in the Middle East. KBR's business model, combined with a differentiation and an alignment to strong secular growth trends really informed our market outlook for fiscal year 2025. And Mark will cover this shortly. And in fact, with that, I'll turn over to Mark.

Thank you, Stuart, and good afternoon, everyone. I'm on slide 11, covering Q4 performance. I just see revenues in the quarter were 2.1 billion. That's up 23% versus the prior year, and that was driven by growth across both segments and also the LinkQuest acquisition we made in late Q3. Adjusted EBITDA was up 21% with margins at 10.7%. Adjusted EPS was 91 cents in the quarter. That's up 32% over last year. This exceeded the adjusted EBITDA growth rate despite year-over-year interest headwinds driven by favorable Q4 tax adjustments. that were within our guided range. Favorable year-over-year below the line items, like mostly FX, and a lower share count on repurchases over the past 12 months. On to slide 12 for the full year, revenues were strong at $7.7 billion, up 11 percent, versus last year, and that's supported by robust growth across both segments, with the additional benefit, of course, of the linked list acquisition which contributed about two and a half percentage points to the to the total adjusted EBITDA was up 16 percent with margins increasing a half a percent to 11.2 percent for the year this type of positive result as i always say starts with excellent program execution and that certainly was the case also as has been the case all year sustainable tech top line growth growth of 17% at 20% plus margins is clearly benefiting margins in terms of mix. Adjusted EPS was $3.34, up 15% versus the prior year, generally in line with the adjusted EBITDA increase, offset by higher interest cost. Taxes were largely consistent year-to-year, and as Stuart indicated, revenue and adjusted EBITDA were at the high end of our guidance ranges for the year, whereas the adjusted EPS succeeded the top end of our range. Operating cash flows were $462 million for the year, with an OCF conversion of 103% to net income. Late in the year, we did make a voluntary payment of $21 million to pre-fund our 2025 United Kingdom pension obligation. This action was taken in conjunction with seeking a negotiated outcome to enable greater utilization of collateralized cash in the UK going forward with the intention of bumping up our ultimate capital deployment capacity by over 50 million. The prepayment did result in OCF finishing at the low end of our guide for the year, but certainly we think worthwhile benefits in the long term relative to deployment capacity. On to slide 13 and our segment performance. First up, with government solutions, revenues in Q4 increased 20% to $1.6 billion, with $150 million in adjusted EBITDA and margins at 9.4%. As you see, all four business units contributed. Defense and Intel revenue growth was particularly strong, as you see, up 33%, supported by the link list acquisition and also organic growth. Primary drivers here include military space, missile defense, and support of advanced technologies, including hypersonics and digital upgrades on various military platforms. International also performed well with an increase of 20%, driven by core UK and Australia defense programs and healthy increases in infrastructure work in Australia and the Middle East. As a reminder, the infrastructure area will shift to STS in 2025 as part of the realignment we discussed in early January. Margins were consistent with last year with normal Q4 seasonality due to lower labor utilization. Book to bill in the quarter was 0.9 times. While that isn't unusual for Q4, we'd note significant awards in our favor remain in protest, which hopefully will benefit future quarters. And for the full year, revenues were $5.9 billion, up 10%, with adjusted EBITDA of $587 million, also up 10% at a 10% margin, very consistent with last year. On to slide 14, sustainable tech. Within sustainable tech solutions, revenues in the quarter were up 30 percent with 108 million in adjusted EBITDA and margins at 20.6 percent. This is quite remarkable given the softness we saw in this market earlier in the year that you might recall. As Stuart suggested earlier, since the summer demand has increased for our ammonia, energy security, and various decarbonization offerings. New projects and on-project growth have both contributed significantly ammonia technology program management consulting services and LNG projects are the main drivers with LNG demand signals particularly picking up after the US election in November all these same factors drove a strong book to bill performance of 1.3 times and Q4 margins as has been the case all year were consistent with our long-term targets 20-plus percent. For the full year, revenues were $1.9 billion, up 17%, with adjusted EBITDA of $398 million, up 18%, and at a margin of 21.3%. This marks the third consecutive year sustainable tech has had double-digit adjusted EBITDA growth. Book-to-bill for the full year was also a strong 1.1 times. Over to slide 15 and the balance sheet and capital matters. As Stuart said earlier, we executed a balanced capital deployment plan in 2024 consistent with the course we set at the beginning of the year. We deployed over a billion in capital with about 75% of that attributed to the linked list acquisition and the rest on returning cash to shareholders primarily through buybacks with over a billion deployed we ended 2024 with a net leverage of 2.6 times we expect this leverage ratio to work down as we grow EBITDA in 2025 now I'd like to provide a little bit of clarity on our capital allocation priorities going forward our first priority as you probably expect is to fund organic growth and also actions to drive operating excellence that's number one. Number two, we are targeting a leverage ratio below 2.5x in the current interest rate environment. Growth in EBITDA should get us there quite soon. Our next priority is returning capital to shareholders. Within this, we plan to continue buybacks with bias to do more. Consistent with our growth, we are announcing our board has approved an increase in full replenishment of our stock buyback authorization to $750 million effective today. We're also committing to maintaining an attractive dividend. As we are tracking to the growth levels consistent with our long-term targets, our board has approved increasing our regular dividend effective this March by 10% to $0.66 per annum, or $0.165 per quarter. Since our first increase in the regular dividend in 2020, the average rate of annual dividend increase has been 13%. Finally, we will continue to take a disciplined approach to acquisitions, focus on bulk-ons that have a strong strategic fit, cultural fit, of course, and also attractive financial profile. I'll now turn to slide 16 and our fiscal 2025 guidance. For fiscal 2025, we're issuing the following. We expect revenue in the range of $8.7 billion to $9.1 billion, representing an increase of 15% at the midpoint. We anticipate adjusted EBITDA of $950 million to $990 million, an increase of 11% at the midpoint. We expect adjusted EPS of $3.71 to $3.95, representing increase of approximately 15% at the midpoint. And lastly, for operating cash flows, we expect a range of $500 million to $550 million, up 14% at the midpoint. CapEx is expected to be between $50 million and $65 million for the year, and our projected effective tax rate is 25 to 27%. Finally, we are expecting phasing of adjusted EPS to be 47% in the first half, 53% in the second half. And with those objectives for 2025, we are certainly progressing well towards the 2027 targets issued in our May 2024 investor day. Now, our guidance does include key assumptions, and I think those are worth highlighting given the current political and economic environment. First, as Stuart said earlier, we believe the types of national security, space, and operations programs that we support will continue to be depended upon and demanded by our global customers, including the U.S. government. We are accordingly assuming all material programs we currently support remain in place. If that changes materially, we'll certainly provide an update as appropriate. We believe there is significant probability of of a full year continuing resolution for the U.S. government fiscal 2025, but assume funding and tasking, including on-contract growth for mission-critical national security operations and modernization programs remains intact. As we've previously communicated, 2025 will be a year in which home safe volumes ramp up considerably. We're assuming home safe continues to ramp, but not at the full domestic moves pace for the peak summer season. Our estimated revenue range is $300 million to $500 million for the year. This compares to less than $50 million in 2024, so quite a contributor to growth. We are not contemplating material effects from some of the proposed tariffs. Our current business levels in Mexico, Canada, and China are not material. and finally we're expecting interest rates and foreign exchange rates to remain static from where we are today so in closing our plan for 2025 is consistent with the long-term targets we set at investor day and we do so with confidence strong growth momentum and a very dedicated

global team with that i'll turn it back to stuart thanks mark i'm on slide 17 with some key takeaways strategies. Firstly, strong fourth quarter and fiscal year 2024 results with double-digit growth, margin expansion and book-to-bill of 1.1 times. We delivered on a strategy in fiscal year 2024, as we discussed earlier, to move up market and position in areas of differentiation. I think we demonstrated a diversified portfolio and a resilient business model, and with more than 60 percent of our adjusted EBITDA generated from non-US government customers. We're confident in our 2025 outlook with double-digit growth at the midpoint across all metrics and entering 2025 with 75 plus percent work under contract. With that, we are happy to take your questions and I'll hand the call back to the operator. Thank you. Thank you. We will now

begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. The first comes from Brent Dailman with DA Davidson. You may proceed.

hey great thanks um and uh congrats on a great finish of the year um i guess maybe maybe a question for mark just in terms of the um initial revenue outlook here for 2025 pull it up 1.1 1.2 billion at the midpoint i think i heard you call out three to five hundred from home safe did you specify you know what you anticipated from winquest in 2025 and maybe just a little further color in terms of how that integration is going great brent well first thanks

for tuning in thanks a great question um so the revenue guide 8.7 to 9.1 billion uh represents growth 15 percent at the point we talked about that in the prepared remarks um of that you mentioned home safe number you know that's roughly five percentage points of the growth link quest is similar numbers it's about inorganic addition of 400 million to the 25 numbers uh running very consistently with our original expectations ballpark 600 million per year really performing great the culture as we said many times before couldn't be better the vd teams are collaborating to really go after new interesting work some of which we've already won quite a bit of which is still in the pipeline and so and this is all that you know good margins as well as we set forth to do so it wouldn't be couldn't be happier with the status of the the team the integration and how they are contributing to a kbr set of capabilities perfect thanks mark and then i guess my follow-up

would just be i mean obviously a lot of success here with plaque mines hit some critical milestones here uh just curious how that if that is opening up discussions maybe with others outside of um lake charles which we know we're waiting for fid there but maybe the tempo of discussions beyond that just with the great success and approach you've had with Black Mines here. Thank you.

Yeah, good question. I think we've talked a little bit in the prepared remarks about the outlook for LNG. I think the world is telling us there's going to be a gap of a couple hundred billion tons of LNG over well certainly through to 2030 and beyond. So there's a lot of activity. We're seeing a lot of early engagement in the LNG market from multiple customers, some are new market entries, some are older projects that are being revived as a consequence of the new administration's focus in energy security. So I think it's going to be a very buoyant part of our future. We're seeing operators with facilities that are operating today looking at expansions and deep bottlenecking to produce more energy as you would expect. So I think it's very exciting time to be in that market and certainly delivering lng and so you know certainly right up there in terms of record time from fid to first lng and blackman sets has been in a very good uh position particularly as we understand the current labor force and all the current supply chains and how it works etc so yeah we're in a good good shape there thank you thank you thank

you. The next question comes from Mariana Perez-Mora with Bank of America. You may proceed.

Good afternoon everyone or good morning as it corresponds. Could you mind discussing what are the main drivers when you think about like 2025 growth and how you think

about like international contributing to that? Okay, international is a big context because our people think of that on the government side but it's also the sustainable technology side. for us. I think Mark was pretty clear in terms of growth as it relates to Lindquist and as it relates to HomeSafe, and we've taken a very balanced view across the rest of the MTS portfolio, you know, particularly with continuing resolutions expected, etc. So I think that's prudent, and I think it's quite balanced in the way we've approached that. The international government markets we're seeing increased spending of course from governments there's a lot of noise in europe as you may have seen from from what's happening opposite ukraine and increased defense spending in europe expected as we go forward but also we're actually taking this call from australia believe it or not which is why mariana said uh depending on this so it's bursting in the morning here uh and uh we're down visiting our businesses here and the government and customers down here and you know the market down here is looking very attractive both in the infrastructure and in the government side we've got a very high-end digitally enabled business in Australia so we're expecting pretty good growth going forward with our business over multiple years in fact that's what's in the pipeline so when I look at the sustainable tech business we talked about LNG as it relates I think most people thinking about the US but we are seeing increased activity in the Middle East, and we covered a little bit of that in the prepared remarks, but also we're seeing Asia starting to take off as well. But importantly, adopting, I guess, a risk model that suits our appetite. So not your traditional wants on EPC, which I think has proven folly to many companies over the years, and of course, we got out of that many years ago, I think, properly. So that was just stood as a very good stand. But the global south, the growth in energy demand is there. I think the Middle East, I think we're seeing increases in Asia. A Singapore business, for example, is very, very busy. But the Middle East plays an important role, not just in the Middle East itself, where we've grown double digit across those countries in terms of our presence, but also the larger projects that are executed in our technical hubs in Leatherhead, Houston and to Chennai so it's so we're seeing lots of activity outside the US which is why we want to reinforce our multiple pathways that we have to here to hit our growth uh that we sum up some downs I'm sure not everything will be perfect but I think having those multiple pathways has proven in the past that we're very resilient and that's why we talk about it quite a bit so I think we're in good shape going forward and then if I may follow up on Lodgap and all

support that you're doing in Europe. How do you think about that going forward in the next 12

to 18 months? Yeah, I think another good question and one we've looked at internally very closely, we've talked about it before, it's a you know two to three hundred million of revenue, it's at a low single digit margin, so from a materiality point of view in terms of our EBITDA, it's not significant in the budget or sorry the guidance as we looked into next year as I said we've taken a very balanced view across the portfolio and I think prudently so and so I think the way we think about it is I mean Defence Secretary Hegg said this basically said that we know obviously withdrawal in the in the short to medium term but goodness knows what happens opposite the you know we can't really speculate in terms of outcomes uh and uh so i think i think ultimately uh we've got quite a lot of uh confidence in terms of the numbers we have through 25 uh and we've got a you know so as a consequence of of the balance that we've taken i think it's fairly appropriate in terms of how we position through the through the guide for that

Thank you. And last one, probably to Mark, just as we check HomeSafe, how should we think about EBITDA margins in this current level of contribution?

Or just the UCOM piece and log cap 5 that you mentioned so broadly?

For HomeSafe, sorry.

Okay, sorry, Maria, I couldn't hear that clearly. We're a far distance from you right now. Anyway, with HomeSafe, we're in a ramp-up phase, And I'm sure we'll talk about that in the course of today quite a bit with others. But we're expecting a very cautious amount of profitability in the year of ramp-up due to all the issues you would expect in a major transformational program. And so we're navigating through that well. We're really proud of the team's efforts. And so it's really a negligible contribution to the profit for 2025, as expected. And so we see, you know, contribution of all the other parts of the business really carrying today. So we'll report that as it comes during the year. And that's the status today.

Thank you. The next question comes from Stephen Fischig with UBS.

Thanks a lot. So I know you guys stepped up the bidding over the past year in the mission technology business, and you cited the 55% plus increase in bids. can you just talk about where you are in in that process in terms of getting decisions back on those i wasn't sure if that was what you're referring to in terms of things under protest or is there still a pretty good ramp of of awards to come there just trying to gauge what sort of the bookings landscape might look like in in that business uh for the next four quarters

yeah steve as we said in our webcast in january and obviously we've been talking about this through the course of 24 realigning our our bid teams and our whole business development capability and effort and really upskilling that as we as if we positioned mts and and we had a target of increasing bid volume which we've exceeded in truth and we expect to grow that further into 2025. we have quite a lot under protest actually that we won under protest probably one of close to one and a half billion dollars uh and you know that's going through the typical protest machinations and within the various agencies where we want that work so hopefully that will start to come through in q1 and maybe into q2 so that really sets ourselves up assuming when the protest of course and then we've got 17 billion uh waiting for award uh through the course of the next 12 months so that's that's really been submitted waiting for evaluation and award so if we won't speculate on timing we you know and particularly in this environment but i think it's a great indicator of the book of business uh that's in front of us and where we're positioned but what i would say is that on top of that we're going into this year with 75 percent of our work under contract uh that's a very healthy healthy number uh and and secondly uh as as we alluded to in the not literally but really talk very clearly i thought in the prepared remarks in terms of quite unique contract vehicles that we're utilizing that they get to procurements quickly and their revenue quicker for us of course but actually addressing the customers national security concerns and we've done extremely well in 24 around the iac max and we've seen unique contract vehicles that Linqvist brought across being able to be utilised with you know circa two billion dollars that we can fill up on that contract vehicle as we move through 24 end and turn into 25. So very attractive areas where we can actually have very strong performance and of course the digital lab piece we talked about is really exciting and I think adding on contract go. So when you add up all those levers, if you like, not to mention obviously what happens in sustainable technology and international government that's not really constrained by a CR in any way, going into the year with 75% under contract with these additional pathways

to growth, I think is terrific. Sounds great. And then just maybe on HomeSafe, maybe you could give a little more colour on how this year has progressed because it sounded like you're saying things stepped up pretty nicely at the beginning of the year. I started to build a little momentum, but it sounds like maybe not, or the change now is that you might not do the full domestic move. So can you talk about what some of the puts and takes are of what's going right there, but yet what at the same time is perhaps holding back the assumptions? And I know you said it's sort of a negligible profit impact for this year, but just curious to learn a little bit more

about kind of what's happening behind the scenes yeah so uh just to give out some context uh we put up i think uh the home safe alliance put out a press release in their own right recently saying they're taking orders of circa 300 350 moves a day i think we we logged in almost just under 4 000 in january alone so that's quite an increase from december uh it's probably about a 400 increase actually in December. So you can see the ramp is progressing nicely. And with that, of course, we are taking on service providers and took on an additional 120 and got well over 500 providers now in the supply chain. But I would just remind everyone, you know, one month of true performance into a 10-year massive transformation program. So I think it's correct that we think that through in terms of ensuring that we deliver and I think you know our focus and objective is is really to to really improve the performance of against the legacy program which has underperformed in many areas which is hence the change and we want to make sure that you know like all programs we probably have we're not perfect but we want to be and we're just being very very sensible about how the ramp goes forward to make sure that operationally we start to really sort of improve performance of our own program but also against the legacy program and I think that will stand as a good step so it's more an element of being focused on delivery it's a 10-year program as I said Steve you know you don't want to win the battle and lose the war you know you want to be very careful about how you actually deliver and make sure you've got and I would say in talking to the the new general at transcom and i think i can say quite openly that both transcom and home safe alliance are 100 committed to the new program and i think we're starting to see as the ramp has gone up more of the supply chain coming in and being interested because clearly this is the way forward so so i think that's i think it's sensibly balanced in our in our guide and obviously if we if we start to go a little bit quicker we'll tell you as we progress the year but better we tell you that than the other way around I would suggest. Thank you. The next

question comes from Jerry Riewicz with Goldman Sachs. You may proceed. Yes. Hi. Good morning,

everyone. Or afternoon. I'm used to your calls in the morning. Can you talk about, Stuart, the potential risk factors to 25 government solutions guidance if we do see a slowdown in awards? What level of risk should we be thinking about relative to the guide that you folks laid

out. Thanks, Gerry. It goes back to what I was talking about earlier. If you actually just take MTS and it's a loan, you're looking at 400 for Lindquist and then, you know, three to 500 million for HomeSafe. And when you, if you do the math back, you can see that the growth rates are in the low single digits for the base business. And I think that's a very considered sensible growth expectation given the uncertainty that, again, we can't speculate on timing and what Doge and all these things are going to do. But ultimately, I think given we've got the international footprint with MTS, I think that's a very balanced element of our guide. So just to give you colour. And then you've got SDS, which is growing in line with our long-term targets. And we're feeling pretty bullish about that. But I think overall, having sort of these multiple pathways that we've talked about numerous times on this call really sets us up nicely and we're pretty confident of our guide. In all the years that we've been doing this we've hit our guidance every year and when you start to look at numbers like 15 percent revenue growth that's probably you know in this environment probably people are thinking that's quite high but when you start to break it down because of the the additions of what we've got with with HomeSafe and with Winquist and with the excitement, what's happening in the energy markets across the world, I think you can see it's, you know, it's a very achievable number.

Okay. And then can you talk about the equity income performance in the quarter? Which line of business drove the lower equity income? And in terms of placements, earnings contribution

that's embedded in the guide in 25, please? No, Jerry, good that you picked that up. And so, So for the full year, the numbers were pretty consistent year over year, but in Q4, you did see a jump down in equity and earnings. And that's, for one thing, to deliver the margins we did, despite the contribution from equity and earnings is significant and positive, in my view. There were two things that were happening in the fourth quarter. One was we did have a very accounting-centric non-cash adjustment on a contingent liability for ictus believe it or not that's still out there and that was remeasured um from a foreign currency exchange downward by 10 million that particular one we added back in the adjusted eps but it does show a reduction in equity earnings when you look at just that line item so that was 10 and then there was a similar number actually on the placements vg project and so we actually had scope increase on the project which is generally a good thing but that did lower our percentage of completion and we had to reset um the jv um position accordingly so generally a good thing and you know it it adds longevity to the project and the income stream from it um but took a you know minor step back in q4 so those are the reasons um so really not substantive to the to the outward view of the business and the confidence we have in the guide

for 25. thank you thank you the next question comes from michael dudas with vertical research

you may proceed good morning jamie stuart mark good morning mike um i hope you didn't go all the way australia for this iscus thing i didn't think we'd have

to hear that name ever again yes it's just squarely accounting mike um it's not it's not real you know

i i understand uh stuart maybe you could share you know with the call we had in january and the realignment of the of the businesses uh what's happened since then and what's given you more confidence or some wins or some opportunities that maybe can drive maybe better performance to get that 25 of business into kbr but maybe even lift the the outlook for beyond given what you guys have realigned and given some of the challenge you have? Thanks, Mike. So the realignment has,

as we said, we're headed to the end of 24 was done. And I'm pleased to announce that the integration of Lindquist is substantially done as we systems and things across that we hadn't achieved when we talked in January. So that's kind of behind us now. So the company is realigned into machine tech and sustainable tech with really just the the infrastructure piece moving across from the legacy international government into into sds and i think what we're seeing now is just the realization of synergy opportunities the cost out exercise that we we embarked on we have achieved that we took the 30 million of cost out i know it didn't drop all to the bottom line because of the the way that we have these reimbursable contracts in the us but it's really positioned us nicely to be competitive and across our business. And you'll see the reduction in corporate costs as we go forward into next year. So I think that all sets us up nicely. So that's all behind us as well. But I think the main reason we did this was to realign the portfolios opposite customers and make sure our talent was aligned to provide solutions to those customers. And certainly the book of business that we've got coming down the type is very exciting and you know the link with steel has already given us fantastic wins and positioned nicely for for 25 and beyond across that portfolio particularly in you know space force and looking at the broader air force portfolio with digital enabled labs and things like that that we addressed in our opening remarks but also within the sustainable tech in the Middle East, the infrastructure portfolio we have there and down in Australia, where we do a balance of infrastructure work across defence infrastructure supporting the AUKUS programme as well as looking at what's happening in things like water and transport are both going really, really well and very much aligned business model-wise and obviously in countries who have got a very strong SDS presence. So our customer engagement and our brand recognition is really strong and that's helping. So I think that move has been well received, not by our people. It's been an easy shift. We had one bad day in terms of taking costs out, which I think the team did a fantastic job, so no dislocation as a consequence. And then thirdly, I think the customers are seeing the benefit of the combined capability

in the appropriate markets that's encouraging steward my follow-up is uh for for you or for mark um uh looking you know back to capital allocation given the dislocation of valuations in the marketplace when you talk about maybe the acquisition book and maybe as you think about your targets on that leverage and cash flows and timing um is uh i assume that you know share repurchase there's powder good dry powder and a desire to take advantage of that yes michael

um you picked up the yearly remarks quite clearly and so while there's always an eye toward mna uh i think i was pretty clear that right of where we are with our outlook which is very healthy and resilient as steward said many times and where we are with with valuation uh we have a bias to do more buybacks and with that our board did authorize a substantial increase in the authorization and because we you know can naturally lever down from two six to maybe two one two two by year end just with EBITDA growth there's really no need to use cash to pay down debt and achieve our targets so so we expect to do buybacks when we can as the window opens with the capital we have, the cash flow outlook we have for the year, and a little bit of excess cash on the balance sheet sitting here as we closed out 2024. So we're certainly bullish on that use of capital coming forward in this environment. Thank you. The next question

comes from Andy Kaplowitz with Citigroup. You may proceed. Hey, good morning, everyone.

Morning. Morning. Just a little more color on STS. Can you maybe color where the demand for ammonia is coming from? Because it doesn't seem like it would be from ag projects right now. Maybe a similar question for energy security and decarbonization. I think we get the LNG potential pickup, but where are the other pockets of growth? I know, Sue, you mentioned Middle East spend, so maybe that's a lot of it. But just I'm trying to think about durability of the demand environment

on the SDS? Yeah, so thanks, Andy. Yes, we do have durability in the SDS piece, I would say. You're right, we've got the LNG market, which I think, as you said, everyone really understands and understands the supply-demand dynamics there and what's happening in the U.S. But I think in the broader energy security market, we're seeing continued activity. We've seen lots happening in the U.S. also around energy security and in Trinidad and obviously across the Middle East, as you rightly picked up on, as they try to only diversify their economies, but really sort of exploit gas in a meaningful way. I think gas becoming the transition fuel as the energy transition piece moves to the right because of affordability challenges. In terms of ammonia, I think that's very much a national play. We reinforce the national operational focus we have and the country focus that really has allowed us to be very sort of tailored and what's right for the individual countries and the customers within those. I think we talked about places like Kazakhstan and Angola in the global marketplace. And when you're looking at places like Angola, the government have provided very, very attractive prices for gas into the ammonia facilities and makes it highly competitive. And I think that would be the first of many trains there, assuming that dynamic continues. And in Kazakhstan, that's the first sort of major investment into fertilizers there for probably multiple decades. So it's typical in different country dynamics that drive the economics of these projects. And that's why it's extremely important. We're a very sort of global business with a strong footprint across the globe from a business development and an execution capability perspective, which we have. So I think the dynamics are different, but I think they're very global nature. I'll go back to my comments again about these multiple pathways to growth. And, you know, we've got a portfolio of 70 plus technologies, as you know, it's not just ammonia. And, you know, they'll go up and down as countries decide what they want to do with their various resources.

Very helpful, Stuart. And then maybe just back to MTS, like in Q4, revenue was quite high. I think a lot of that was LeanQuest, obviously. But, you know, did you see any sort of like spending flush or something like that before the new administration took hold? And as we think about bookings for you guys, obviously timing is all, you know, can always be lumpy. But should we think that bookings might be a little slower for a quarter or two before they pick up? Or, you know, how do you think about that? Have you seen any Doge impact so far or do you expect to see any?

So on Doge, we have not seen impact at all yet. uh in terms of timing of awards going into next year we do think they'll probably be slower just through continuing resolution and the uh what's happening within the administration and we just won't speculate on that but we do have as we said one and a half billion that's under protest and that could come through in the first half of the year which would obviously make bookings uh uh probably reasonably strong in q1 q2 depending on the timing of the resolution of those protests uh so that's kind of that's kind of where we sit on that uh i think sds but things will be progressive through the year um as as we've seen in in prior years and international government

similarly so and i'd say uh andy that you know i think we did have a little bit of pickup in tasking uh that's not too common in the fourth quarter with a with a new cr in place but i because of the administration change and maybe um dynamics about uh you know upcoming slowness with some of the doge rhetoric and so forth there might have been a little bit of push to get things done in the tasking area in the fourth quarter we had a couple extra productive days in the fourth quarter as well so that helped a little bit um i will just further endorse what stewart said about you know, we haven't seen a direct impact of the pace. We haven't seen any adverse collections issues out of the government thus far. So we'll see how that goes, but we're seeing status quo at this point in time.

Thank you. The following comes from Sanjita Jain with KeyBank. You may proceed.

Hi, good morning. Thank you for taking my question. So if I can ask one on home safe, so if the domestic I don't think that it's pushed out, and can you pancake them as they move forward?

Sangeeta, we apologize, but that cut out for us here. Could you repeat the question if you don't mind?

Sorry, sorry. Let's see if this works. But I was going to ask about the home safe ramp. If the domestic ramp is taking a little bit longer, can you still pancake the international ramps on top of that as the domestic ramps get to the full run rate our view uh in talking with the

customer is that these will occur sequentially and so if domestic pushes out a bit then that could have a carryover effect to international so we don't see a scenario today where international will will accelerate in light of you know change in pace of domestic it's it's sequential okay and

And then a quick one on Mura, really appreciate the updates that you guys provided. How should we think about the P&L impact as these additional plants start operations?

So the way to think about this is it's one of our multiple pathways to achieving our growth targets that we've given in our guide. I think it's a very exciting development and we'll give more updates as we get into true operational performance. and obviously i'm from australia i'm actually going to japan so i'll get more info on the this facility and when i'm there but it's it's exciting we've we've talked a number of times about the number of licenses and the number of projects that are waiting for commercial operations to be declared and certainly heading that way so it's just another example of the pathways that we the multiple one of the multiple pathways we have to achieve their targets and

and it's exciting. And I'll just add that MIRA is very similar to our other offerings in STS in case this is not well known but with a kicker because in the case of MIRA you know we we have exclusive licensing rights so there's licensing opportunity there's also proprietary equipment opportunity with clients that choose to to work with us on the industrialization of their plants leveraging that you know technology at the front end there are service offerings like pmc that we can offer to plants under construction and uh and as we've said we have partial ownership in euro and so um in the future as they become profitable which is certainly the intention that we we can we participate in that respect as well so there's multiple economic paths in this case

Yeah, just to give more colour on that, we took the original sort of what they call stick build design and we put the whole facility into a module that can be fabricated in a yard, which means it's safer, it's quicker, it's more controllable in terms of schedule and cost for that matter. But that really resell as part of our proprietary equipment offering, so really extending the scope for KBR in future endeavours. And that was what was employed on the LG Chem facility, which is probably going to be built and go operational a year quicker than a state-built facility that was originally being built in the UK. So I think we've proven out that thesis. So it's a very exciting part of our future.

Thank you. There are currently no other questions queued. I will pass it over to Stuart Brady for final remarks.

Thank you very much. So in closing today, we're very excited about the path with KBR in 2025 and beyond, of course. We are confident in our ability to continue creating value for our shareholders. And to that end, I'll leave you with a few key takeaways. So we have completed a multi-year transformation, becoming a leading provider of differentiated, innovative, upmarket science, technology, and engineering solutions with large-scale and, importantly, global reach. We serve diverse, attractive end markets aligned with strong secular growth trends. And we have top talent combining deep domain expertise, proprietary technologies, and an unwavering focus on execution with a specialisation in complex, mission-critical work. We're excellent partners. When we try to be, we're operating in dynamic teams to solve our customers most complex challenges and we've seen that quarter in quarter out and this had resulted in recurring long-term engagements and over 21 billion dollars of backlog and options and importantly 75 plus work under contract going into 2025. A diversification of low capital intensity and a disciplined capital allocation generated stable predictable cash flows and long-term shareholder returns and we have growth and margin expansions plans in flight so thank you again for joining us thank you again for your interest in KBR and we look forward to updating you again next

quarter thank you this concludes today's conference call thank you for your participation you may now disconnect your line