Earnings Call Transcript - KBR Q1 2023

Operator, Operator

Good morning, ladies and gentlemen. Welcome to the KBR First Quarter 2023 Earnings Conference Call. My name is Jeslita, and I will be your moderator for today’s call. I would now like to pass the conference over to your host, Jamie DuBray with KBR. Jamie, please go ahead.

Jamie DuBray, Host

Thank you, Jeslita. Good morning and welcome to KBR’s first 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 year 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.

Stuart Bradie, CEO

Thank you, Jamie, and thanks to you all for taking the time to join us this morning. Now, before we begin our earnings call, I am deeply saddened to inform you that Lieutenant General Vincent Stewart, U.S. Marine Corps retired, a very distinguished member of our Board, passed away this past Friday. Vince has been a Director of the company since June 2021. On behalf of KBR’s Board of Directors and all of our employees, we extend our deepest sympathies to Vince’s family. I am personally very saddened by Vince’s passing. He was a tremendous support of the company and me personally, and I will always be appreciative of his service and his impact on KBR. Now I will start today’s presentation on Slide 4. As you know, these are our Zero Harm pillars. And today, I’d like to talk about our annual Zero Harm Day that celebrates all of the pillars you see on the slide. On February 22 of this year, KBR employees from all around the world came together to celebrate the company’s 8th Annual Zero Harm Day. This is an important and significant day in the life of the company, where we celebrate KBR’s outstanding safety performance and our sustainability culture throughout the organization. It’s also an opportunity to really recognize our people for the Zero Harm achievements and their courage to care. Project sites, offices, and business groups worldwide had Zero Harm Day events. Thousands of employees took part in a wide range of activities, including panel discussions on climate change and mental health, involving community leaders and experts to talk about topics ranging from personal safety, recycling, and giving back to communities. Overall, it was a fantastic day of recognizing our employees' contributions while also renewing our commitment to a Zero Harm culture at KBR. And of course, we carry on the Zero Harm ethos throughout the entire year. Recently, our young professionals' resource group came together on Earth Day for a day of giving back, participating in a beach cleanup in Galveston, partnering with the non-profit Galveston Bay Foundation. Well done to those aspiring leaders. Now on to Slide 6, where I'd like to discuss some key highlights from the quarter and the overall health of the business. Firstly, at the highest level, we have really hit the ground running in 2023. Our people continue to perform outstandingly day in, day out. I would really like to thank them personally for all that they do. Already this year, our headcount has increased by 7%. That’s quite a jump, and almost all these roles are billable. Attrition has come down and stabilized at normative levels, which is really helping, and our increased focus on retention and recruitment is paying off. So, a big shout out to the folks in HR for their terrific work. While employee numbers are not the only measure of growth for a services business, they are a solid indicator. I want to highlight a program we identified as best practice from the Centauri acquisition, which we have now broadened across KBR: our tech fellows program. This program takes nominations and identifies and celebrates our leading technical experts, showing the value KBR places on technical excellence. Many of these fellows are world leaders in their fields and serve as brilliant mentors to our emerging talent. This program provides a community and forum for innovation and collaboration on key topics important for our government and the world in general. We allocate additional budget and time so they can invest in their chosen passions. Now, moving on to our ESG program, Zero Harm. I am pleased to report that our first quarter HSSE performance continues to be top quintile, which is terrific. Remember, good safety is good business. From a shareholder value perspective, in Q1, we were awarded three green ammonia projects. These projects represent different levels of maturity, and while we announced each separately, when put together, they convey our market story and positioning. We also announced BP’s hydrogen development work, where we are working in an integrated and collaborative framework, which should lead to further opportunities over time. BP has publicly committed $30 billion to hydrogen infrastructure going forward, which is super exciting. On the bottom left of the slide, I will touch quickly on business growth. We were awarded $3.1 billion in the quarter, which took our backlog and options up to approximately $21 million. Importantly, the book-to-bill for the group was 1.4x, with GS at 1.0x in what is typically a slower quarter and STS at an impressive 1.9x on a trailing 12-month basis. I think these are great indicators of our continued momentum for 2023 and towards our 2025 targets. Another key takeaway is our positive sentiment about 2023, with 85% of our work now under contract, a high level for this part of the year. Touching on the financials, when excluding OAW, our revenue was up a strong 18%, and margins increased by 170 basis points to 11%. Cash flow was positive, though seasonally low, influenced by cash-out events such as compensation payouts, among others, in Q1. Our net leverage now stands below 2.0, showcasing a solid balance sheet. While we exceeded consensus by a considerable margin, we have decided to maintain our guidance for this quarter, as we want to observe how the remainder of the year unfolds. With 85% of our work secured and a robust and active pipeline, I can affirm that momentum remains strong. On Slide 7, let’s talk a bit more about market conditions and our awards. The market across sustainable technology continues to be very positive and aligns well with our offerings. We spent a considerable amount of time discussing STS last quarter, and the market drivers we identified then still hold today. Our book-to-bill in the quarter maintained pace, with key wins highlighted on the left. Phase 2 of Plaquemines received the green light, marking a great victory in sustainable services. Additionally, we secured our first plastics recycling module on the IP side, demonstrating that these projects are now moving into the execution phase, including orders for proprietary equipment. Over the trailing 12 months, our book-to-bill, excluding Plaquemines, was 1.6x, reflecting the strength of our portfolio. In Q1, we secured seven ammonia awards, comprising three in green ammonia, one blue, and three gray, focused on additional capacity. This highlights the growing demand within the ammonia hydrogen markets, and there exists an increasing mix of long-term contracts within the STS portfolio, positioning us well for the future. Examples include Plaquemines, BP's hydrogen project, and a recent win for Equinor in Canada, all multi-year contracts that enhance our visibility beyond 2025. The backlog in STS is just under $5 billion, approximately three times our annual revenue, indicating we are in excellent shape. Turning to Government Solutions, the market fundamentals remain similar to those described last quarter. Increased tensions in Europe and in a global context are driving heightened activity in several of our business areas, particularly regarding readiness and sustainment. While the defense budget is still being formalized, it is directionally favorable and aligns well with our positioning at KBR. The space budgets are also seeing increases in both military and civil sectors, which positions us favorably. Within our military space business, which falls under our defense and intelligence portfolio, we saw over 20% growth last year and a strong start in Q1. Internationally, increased peer threats are fostering closer collaboration among Western allies, with AUKUS serving as a prime example. In what is traditionally a slower bookings quarter, we achieved a book-to-bill of 1.0x, which does not yet account for the recent OMES III award for NASA, where KBR is a minority joint venture partner. This award is approximately $700 million and will be recorded in Q2 or Q3, depending on protests. Our book-to-bill does not include any initiatives for HomeSafe at this time, but the transition work there is over 50% complete, and we are making significant strides on the commercial front ahead of our initial moves later this year. Several awards across all business segments have driven the positive book-to-bill performance, including increased task orders on LOGCAP in the U.S. and Europe, awards under IAC MAC and TENCAP contract frameworks, high-end R&D awards, and numerous consulting assignments. This demonstrates the resilience of the KBR business model, allowing us to pursue major opportunities while ensuring we have diverse revenue streams. I’d also like to highlight the new space suit demonstrated earlier this year where Axiom was the main contractor, and we are a key design partner in this exciting program. Additionally, our team was recently awarded the Super Nova award, the highest safety and excellence honor from NASA, aligning perfectly with our Zero Harm values—a significant win. Overall, we are receiving positive feedback as award activity levels increased throughout Q1 after a slow start to the year, which bodes well for Q2 and Q3. In summary, our momentum continues with multiple favorable market factors, with a strong delivery focus that is clearly reflected in our results across the company. We are very optimistic about our start to 2023. With that, I will hand over to Mark so he can dive into the numbers and segment performance.

Mark Sopp, CFO

Great. Fantastic, Stuart. I’ll pick up on Slide 9. As you just heard, we are off to a terrific start for 2023. We are really pleased to see strong P&L results from both businesses, driven by excellent project execution and leveraging growth opportunities. The top line tipped $1.7 billion, which represents an 18% increase on an ex-OAW basis. As a reminder, OAW was the large episodic humanitarian effort we supported from 2021 to 2022, contributing about $300 million in revenues at the beginning of 2022 as it wound down. Ex-OAW growth of 18% is quite impressive, fueled by both segments that I will cover shortly. Profit margins were excellent at 11% of revenue, with EBITDA growing to $182 million, also up 18%. Excluding OAW, EBITDA grew approximately 30%, showcasing terrific margin expansion year-over-year—a fantastic achievement. This level of EBITDA represents a record high quarterly operating profit for KBR, driven by both segments, with STS surpassing 20% and government profitability performing consistently at the target of 10%. The robust EBITDA, paired with normative below-the-line items, resulted in adjusted EPS of $0.67 per share. Given the strong performance in Q1, particularly in STS, we are ahead of pace for 2023 and will keep you posted on this as the year progresses. As for cash flow, the results were as expected, typically low in Q1 due to incentive payments and impacted by a $25 million headwind from early collections back in Q4, as well as other timing items. Additionally, working capital demand increased due to the strong sequential growth we observed since Q4. We expect to get back on track in the later quarters of this year. On a positive note, we collected the second and final installment of the Ichthys settlement of AUD 90 million, providing a nice boost to our treasury this quarter. Moving on to Slide 10 for more detail on the two segments, STS and Government. Starting with STS, revenues surged nearly 50%, all organic, which is exceptional. This reflects our technology offerings helping stabilize global energy security challenges, with a world-class team executing their business effectively. We are witnessing growth across all verticals within STS: ammonia/hydrogen, olefins, clean refining, plastics recycling, and sustainable services, all supporting vital projects globally. Our focus remains not only on the immediate future but also on long-term growth, continuously seeking and acquiring new technologies and leveraging them across our global installed base with a highly effective sales team. In Q1, we added sustainable aviation fuel with Swedish Biofuels, Acetica for carbon capture usage, and SCOREKlean for zero-carbon ethylene cracking using hydrogen burners. These acquisitions enhance our capabilities and serve us well amidst favorable market conditions. EBITDA for STS reached $82 million, with margins increasing from 17% to 22%, reflecting a favorable license mix, economies of scale, and strong performance in execution. While not shown here, our book-to-bill for STS was a remarkable 1.9x TTM, and an incredible 2.2x in the quarter—demonstrating end-market conditions and our strong leadership position. Now turning to Government, revenues grew 12% ex-OAW, reflecting solid market conditions and a presence in areas of greatest need. We saw strong sequential growth from Q4, with all four business units growing, particularly NGS, which grew significantly since Q4. Growth was driven by our readiness and sustainment, defense systems engineering, and space business areas, with promising growth internationally in technical consulting. Most of this business consists of long-term recurring base operations supporting the armed services community globally, including stable support for the European Command and Northern Command under LOGCAP V. Our customers have added substantial increases to support allied efforts in Ukraine and general security in Europe, reinforcing our positive outlook for the year and beyond. Science and space grew 10% year-over-year and continues to benefit from increased NASA and commercial space mission activity. Our team receives stellar award fee scores, showcasing superb service, demonstrating the pride we take in our work across KBR. Margins for Government came in at 10%, consistent with our targets and recent performance. Moving to Slide 11 on capital matters, with strong EBITDA growth, net leverage ended the quarter at 1.9x. Last year, we expressed caution regarding debt amid rising interest rates, and we have executed our strategy well, while also deploying capital for tuck-ins and returning capital to shareholders. M&A remains selectively in play. We added new technologies in STS this past quarter, and while we are focused on the convertible debt settlement, we are also committed to returning capital to shareholders through buybacks, totaling $50 million in Q1, along with an additional $11 million for benefit plan offsets. This quarter, we optimally adjusted our fixed-to-float ratio to around 90%, which will drop to 5 to 10 points when we retire the convertible securities this fall. The average interest rate for our current debt stack is roughly 4%, creating significant stability in our interest outlook as we strive toward our 2025 financial targets. For our forward outlook, on Slide 12, with an excellent Q1 and 85% of our outlook already secured, we are reaffirming our 2023 guidance across all measures. The strong start also indicates a shift in the expected contribution of earnings through the year, now looking at a 48-52 split of EPS between the first half and second half of the year. Thank you, and I will turn it back over to Stuart to conclude.

Stuart Bradie, CEO

Thank you, Mark. A fantastic job, as always. On my final slide today, Slide 13, I will touch on a couple of key takeaways. In summary, we have had a terrific start to the year with sequential growth in all business units, margin expansion, adjusted EPS ahead of expectations, showing that our people are delivering significant value to our stakeholders. Book-to-bill was impressive at 1.4x on a trailing 12-month basis, and more importantly, the quality of our awarded work and associated earnings are in critical strategic areas. With 85% of our work already secured for 2023, we are well-positioned in attractive markets for the future, reinforced by our recent successes. We remain absolutely committed to our 2025 targets. Thank you, and I will now hand back to the operator, Jeslita, to open the call for questions.

Operator, Operator

The first question comes from Bert Subin with Stifel. You may proceed.

Bert Subin, Analyst

Hey, good morning, and thank you for the question.

Stuart Bradie, CEO

Thanks, Bert.

Bert Subin, Analyst

Stuart, maybe just a follow-up to some of the comments on STS. How should we think about the sustainability of the current demand backdrop? You noted several material wins over the last couple of months. But the concern is if the global economy does start to head lower, ultimately, you could see a mix shift away from some of the licensing activity you’re doing back towards services, and that could lead EBITDA down. Is there any concern like that in the near future? Or do you think the high book-to-bill and the pipeline give you a pretty good runway regarding our EBITDA rate?

Stuart Bradie, CEO

Yes, we’re not seeing any signs of concern, Bert. I think what’s driving our book-to-bill and activity levels in our licensing and IP sectors is robust. On the Sustainable Services side, the margins we’re attracting due to the high-quality work we’re doing there are also very favorable. So we don’t foresee any downward margin pressure at the moment while we maintain our guidance. One of the key takeaways is that we’re well-positioned for more longer-term programs, like the BP hydrogen work, providing better visibility into our future performance.

Bert Subin, Analyst

Okay, great. Maybe on the other side of the business, you mentioned in your release that ONE contract growth in Government Solutions has been a tailwind, with Science and Space showing better trends. The expectation was that segment would grow more slowly this year, but with the jury win at Goddard Space Center, do you see a path to potentially hitting the higher end of 5% to 8% core growth in Government Solutions this year, excluding OAW and HomeSafe?

Stuart Bradie, CEO

Yes, I think Mark mentioned that. The sequential growth across all business areas in Government was 6% from Q4 to Q1 this year, indicating a positive trend. However, it might be premature to go overboard in our forecasts. We have performed remarkably well with an 18% year-over-year growth rate excluding OAW, which is impressive in itself, and has set a high bar.

Bert Subin, Analyst

Great. Thanks, Stuart, and congratulations on the quarter.

Stuart Bradie, CEO

Thank you.

Operator, Operator

Thank you. The next question comes from the line of Jerry Revich with Goldman Sachs. You may proceed.

Jerry Revich, Analyst

Yes. Hi, good morning, everyone.

Stuart Bradie, CEO

Good morning, Jerry.

Mark Sopp, CFO

Hi, Jerry.

Jerry Revich, Analyst

I’m wondering if you could expand on the Sustainable Tech Solutions performance in the quarter? It feels like that was ahead of plan. Can you discuss how much of this was due to favorable closeouts versus what we see flowing through that will continue into the second quarter plus?

Stuart Bradie, CEO

Yes, our long-range targets remain as they are, Jerry, aiming for high teen margins, which could reach the low 20s for this business. We are experiencing consistent favorable closeouts of projects, with Q1 reflecting no different trends. Book-to-bill is indicative of continued activity, and the team is doing an outstanding job.

Jerry Revich, Analyst

The reason I ask is the discussion this morning is around whether the strong performance should result in a positive guidance revision, because without it, guidance looks below consensus in the coming quarters. Can you expand on that point? Is it just too early in the year, or is there concern regarding the debt ceiling negotiations possibly shifting timings of awards?

Stuart Bradie, CEO

There are no parts of the business indicating negative variances, and while we acknowledge exceeding the quarter-one performance compared to the consensus, we are still comfortably within our guidance range. It’s still early in the year, and with Q2 and Q3 ahead, we will have a better understanding of how the business performs.

Jerry Revich, Analyst

It sounds like we are towards the high end; does that fit with your expectations?

Stuart Bradie, CEO

Well, I think the math will tell you that.

Jerry Revich, Analyst

Super. Thank you.

Operator, Operator

Thank you. The next question comes from the line of Jamie Cook with Credit Suisse. You may proceed.

Jamie Cook, Analyst

Hi, good morning. And congrats on a great quarter. I want to follow up on STS. Obviously, a strong EBITDA performance this quarter. Is the $80 million EBITDA something we should consider as a run rate for the next couple of quarters? Also, could you provide insight into the size and scope of the Plaquemines contract?

Stuart Bradie, CEO

Yes, the $80 million we achieved this quarter benefited from project closeouts and the favorable mix. We’ve provided guidance of $300 million for STS this year, and with this target, we may exceed that but are committed to reaching at least that number. The characteristics of STS allow for significant growth, and in terms of Plaquemines, the first phase was approximately 13 million tons with infrastructure capable for 20 million tons. The second phase encompasses the remaining 7 million tons of LNG, translating to about $800 million entering the backlog.

Jamie Cook, Analyst

Okay, thank you. Congrats again.

Stuart Bradie, CEO

Thank you, Jamie.

Operator, Operator

Thank you. The next question comes from the line of Sean Eastman with KeyBanc. You may proceed.

Sean Eastman, Analyst

Hi, team. Nice start to the year. I wanted clarification on the STS outperformance for margins this quarter—is this driven by the core licensing business or the closeouts on legacy portfolios?

Stuart Bradie, CEO

It’s probably a bit of both, Sean. We have legacy contracts and ongoing technology projects that close out progressively, allowing us to book up the upside as those closeouts occur.

Sean Eastman, Analyst

Thanks, Stuart. Regarding the debt ceiling negotiations, how is KBR analyzing the scenarios and risk factors associated?

Stuart Bradie, CEO

The whole negotiation is beyond our control. However, we believe the unique attributes of KBR differ from some peers. Our STS business operates independently of that debt ceiling situation. Our international government business will also remain insulated from this. We are engaged in operational work that cannot simply be switched off, regardless of the circumstances. Moreover, over half of our GS backlog is in long-term funded contracts, giving us confidence.

Sean Eastman, Analyst

That makes sense. A last quick question about the Australian defense strategic review that was released last month. Are there any shifts in priorities that you view as noteworthy?

Stuart Bradie, CEO

It’s still under analysis, but there’s a strong focus on AUKUS and naval initiatives where we are well-positioned. Mission IT is well-funded going forward, and while there may be reprioritization, it’s not expected to change our guidance or outlook.

Sean Eastman, Analyst

Understood. Thank you.

Operator, Operator

Thank you. The next question comes from the line of Andy Kaplowitz with Citigroup. You may proceed.

Andy Kaplowitz, Analyst

Hi, everyone. You mentioned the seven ammonia awards in Q1 and the recent plastics recycling modular plant. Are we seeing an acceleration in key markets during the quarter? Can we sustain the 1.6x book-to-bill moving forward?

Stuart Bradie, CEO

Yes, we are quite optimistic about market conditions and our pipeline, which remains strong. It’s challenging to predict whether we can exactly replicate that 1.6x every quarter, but our message is clear: we have a strong backlog secured for STS and over 85% overall for 2023.

Andy Kaplowitz, Analyst

Regarding the space business, do you see acceleration following the wins? Is the 10% growth in space potentially linked to the Artemis program progress?

Stuart Bradie, CEO

Absolutely, the Artemis program and existing contracts are driving on-contract growth. The health aspect of our services is also experiencing substantial growth. The military space segment in our intelligence portfolio has also been performing well.

Andy Kaplowitz, Analyst

Thanks for the clarity.

Operator, Operator

Thank you. The next question comes from the line of Steven Fisher with UBS. You may proceed.

Steven Fisher, Analyst

Thanks. Good morning. I wanted to follow up on your earlier guidance discussions. What specific uncertainties are you focused on for guidance updates? Is there anything related to the debt ceiling negotiations that might affect timing?

Stuart Bradie, CEO

Not particularly, Steve. It’s primarily a timing issue. We’d like to have a few more months under our belt before final considerations are made. We have secured work to deliver, and while our guidance aligns closely with consensus, it’s early, so we’d prefer to await developments in the upcoming quarters.

Steven Fisher, Analyst

Got it. Could we also discuss the M&A pipeline? How might the upcoming converts settlement influence your M&A strategies?

Mark Sopp, CFO

Our M&A pipeline remains consistent. The government landscape is always evolving, and we’re pleased to have executed a few tuck-ins recently. Our top priority this year is to settle the convertible securities, which will involve substantial capital. Nevertheless, we still have adequate liquidity to pursue tuck-ins as opportunities emerge.

Stuart Bradie, CEO

We’ve started the year with increased buyback activity compared to last year. Once we finalize the convertible securities later this year, we will have greater liquidity to focus on our capital deployment goals and achieving our 2025 targets.

Steven Fisher, Analyst

Thanks for the breakdown.

Operator, Operator

Thank you. The next question comes from the line of Gautam Khanna with Cowen. You may proceed.

Gautam Khanna, Analyst

Good morning.

Stuart Bradie, CEO

Good morning, Gautam.

Gautam Khanna, Analyst

Regarding HomeSafe, you mentioned a successful transition. Are your expectations similar to the $0.5 billion every six months increase projected? How do you foresee the phased increase in 2024 and 2025, and what do you believe the peak rate will be?

Stuart Bradie, CEO

We believe the ramp for HomeSafe will not be impacted. We foresee continued growth in line with previous expectations for a $20 billion program. While the revenue cadence might exceed $2 billion total, please allow us more time to provide accurate expectations as the transition period progresses.

Gautam Khanna, Analyst

Thank you.

Operator, Operator

Thank you. The next question comes from the line of Michael Dudas with Vertical Research. You may proceed.

Michael Dudas, Analyst

Good morning, gentlemen.

Stuart Bradie, CEO

Good morning, Michael.

Michael Dudas, Analyst

I wanted to follow-up on your technology comments. Ammonia and plastics have shown strong momentum lately. Can we expect ongoing improvement in these spaces, or will it be more balanced with established technologies?

Stuart Bradie, CEO

We anticipate positive momentum in both ammonia and our plastics initiatives. The growth across our portfolio is driven by multiple market drivers, and we are benefiting from several projects globally.

Michael Dudas, Analyst

With new technologies entering your mix, do you have visibility into the timeline for orders and how soon these might benefit your results?

Stuart Bradie, CEO

Each technology's timeline varies. For sustainable aviation fuel, we anticipate significant growth due to the stringent sustainability requirements from governments and industries. Our goal is to capitalize on these trends, while we are enthused about the potential of technologies like acetic acid and our olefins advancements, which are being developed. Visibility on order placement will increase as we progress further.

Operator, Operator

Thank you. The next question comes from the line of Brent Thielman with D.A. Davidson. You may proceed.

Brent Thielman, Analyst

Hi, thanks. Good morning. Regarding the growing mix of long-term contracts within STS, do you view this as a market trend, and how will it affect future revenue?

Stuart Bradie, CEO

Yes; that’s the direction we are heading. Given the heightened activity level, we will strategically work to engage longer-term contracts. These longer agreements will aid in resource retention and position us well for future success.

Brent Thielman, Analyst

Understood. There’s a lot of movement within the STS segment. Are you considering providing further breakdowns of this segment for more insight into its performance?

Mark Sopp, CFO

It’s indeed a good consideration. As STS grows in significance within our operations, we need to improve our communications. Breakout components of a sizable business can be meritorious and we aim to enhance how we relay this information moving forward.

Brent Thielman, Analyst

I appreciate the consideration and the detail. Thank you.

Operator, Operator

Thank you. The next question comes from the line of Mariana Pérez Mora with Bank of America. You may proceed.

Unidentified Analyst, Analyst

Hi, actually, it's Andrew on behalf of Mariana today. Thanks for taking my question. I wanted to understand better the expected free cash flow growth for the year, especially considering where you are now. How do you expect us to reach the $4.25 to $4.60 range for cash flow?

Mark Sopp, CFO

The Q1 cash flow does stand out, primarily due to timing items. We anticipated a low number in Q1 with increased cash flow expected later in the year. We are focused on reducing DSOs and recognize the need for improvement. The business model remains strong, and we anticipate this trend will continue.

Stuart Bradie, CEO

Just to note, Q1 and Q4 tend to be our lower quarters; Q2 and Q3 are typically stronger. We anticipate rising cash flow as the season progresses.

Unidentified Analyst, Analyst

Great, thank you.

Operator, Operator

Yes, currently no more questions waiting at this time. I would now like to turn the call back over to Stuart for closing remarks.

Stuart Bradie, CEO

Thank you. Thank you very much. To summarize, we have had a great start to 2023 with strong revenue growth, margin expansion, and a significant focus on delivering shareholder value. We look forward to engaging with many of you later today. Thank you.

Operator, Operator

This concludes today’s conference call. Thank you for your participation. You may now disconnect your lines.

Stuart Bradie, CEO

Thank you.