Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KBR Inc (KBR, Financial) reported a 6% year-over-year increase in revenue and a 13% increase in adjusted EBITDA, with margins up 75 basis points.
- The company achieved a year-to-date cash conversion rate of 121%, demonstrating strong cash flow management.
- KBR Inc (KBR) raised its full-year guidance for adjusted EBITDA to a range of $825 million to $850 million and adjusted EPS to $3.15 to $3.30.
- The company secured significant new contracts, including a five-year contract with the Iraqi government and multiple awards under the IAC MAC IDIQ contract vehicle.
- KBR Inc (KBR) announced the acquisition of LinQuest, which is expected to be immediately accretive on a cash basis and aligns well with the company's strategic goals.
Negative Points
- The energy transition projects are moving slower than expected due to affordability issues, impacting the pace of growth in this segment.
- The readiness and sustainment segment experienced a contraction, particularly in EUCOM activity, due to funding delays related to the Ukraine conflict.
- The company faces potential volatility in the U.S. market due to upcoming elections, which could impact future performance.
- The integration of LinQuest, while promising, carries inherent risks and will require careful management to realize expected synergies.
- The book-to-bill ratio for the STS segment, excluding the large LNG project, was 1.1, indicating a potential slowdown in new bookings relative to revenue.
Q & A Highlights
Q: Can you expand on the realignments and what you think that will achieve for the firm?
A: The objective is to reduce complexity by moving from three business units to two. This will involve shifting certain projects, like the Diriyah Gate project and Sellafield decommissioning, into the Sustainable Technology Solutions (STS) segment. This realignment aims to leverage synergies, reduce overhead, and enhance commercial acumen.
Q: From a geographic perspective, where do you see the most rapid growth across the enterprise over the next year or two?
A: Significant growth is expected in the Middle East, particularly in the energy sector. Additionally, with the LinQuest acquisition, there will be increased activity in the U.S., especially in the government sector, and continued emphasis in the Pacific region.
Q: Can you share more about the STS pipeline and your confidence in achieving growth targets for 2025?
A: The STS segment has shown strong momentum with a book-to-bill ratio of 1.1 for the quarter and 1.2 on a trailing 12-month basis. There is a robust pipeline globally, especially in the Middle East. Energy security projects are moving faster due to affordability issues in energy transition projects.
Q: Any early read on the new government in the UK and how things may shake out?
A: The new UK government is fully operational and committed to NATO and supporting Ukraine. There is also a strong commitment to energy transition, which presents good opportunities for KBR.
Q: Can you provide commentary on the second half outlook for STS and the impact of Plaquemines?
A: We stand by our guidance and expect continued strong performance in STS. The LNG industry is showing movement, and there is significant activity in the Middle East. Plaquemines is at peak contribution and will start to wane in 2025.
Q: How is the HomeSafe program progressing?
A: Early moves have gone well with positive feedback on quality and service. The program is on track for a progressive ramp-up, with full domestic moves expected in the busy season of 2025.
Q: What are your expectations for RNS activities in Europe in the second half of the year?
A: RNS is seeing sequential growth, particularly from non-LOGCAP activities. We expect EUCOM-related activities to pick up in Q3 and Q4, driven by the Ukraine supplemental funding.
Q: Can you bridge us between the old and new guidance for EBITDA and EPS?
A: The increase in guidance is driven by strong operational performance. We have been prudent in raising guidance due to expected volatility in the U.S. and globally.
Q: What growth rate is embedded in the LinQuest acquisition, and will it be immediately accretive?
A: LinQuest is expected to grow in low-double digits in 2025, excluding synergies. It will be immediately accretive on a cash basis from day one.
Q: Are the new bids in GS a greater volume of the same types of work or a wider scope?
A: It is a bit of both. We are seeing more opportunities in digital and cyber, as well as new areas like human health performance. We continue to align with our vision of moving upmarket and being differentiated based on our technologies and capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
