Yahoo Finance KBR, Inc. (NYSE:KBR) Q1 2024 Earnings Call Transcript
KBR, Inc. (NYSE:KBR) Q1 2024 Earnings Call Transcript April 30, 2024
KBR, Inc. misses on earnings expectations. Reported EPS is $0.689 EPS, expectations were $0.7. KBR, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning everyone and welcome to the KBR Inc. First Quarter 2024 Earnings Conference Call. My name is Drew and I'll be the operator on today's call. After today's formal presentation we will begin the Q&A. [Operator Instructions]. At this time, I would like to turn the conference over to Jamie DuBray, Vice President of Investor Relations. Please go ahead.
Jamie DuBray: Thank you. Good morning, and welcome to KBR’s first quarter fiscal year 2024 earnings call. Joining me are Stuart Bradie, President and Chief Executive Officer; as well as Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will provide highlights from the quarter and then open the call for your questions. Today’s earnings presentation is available on the Investors section of our website @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.
Stuart Bradie: Thank you, Jamie. I will start on slide five on developing our people. Today, I wanted to take just a few moments to talk about our people because our people, as you all know, are key to success. They're the ones who deliver value to our customers, they solve the complex challenges, and they drive innovation at KBR. And they're the ones who make KBR an absolutely great place to work. And that's why we are dedicated to creating a culture of learning and growth for all our employees. We want to empower them to reach their full potential and, of course, have fulfilling careers. In recent years, our Chief People Officer, Jenni Myles has greatly expanded our talent development programs, spanning all parts of the globe, and from new hires to senior leadership, there are development opportunities for every level.
And I'm pleased to say that this has actually been recognized recently by MSCI, where we've received a four-star rating, their top rating actually, in human capital development this year, an exceptional milestone and recognition. Now, I won't spend too much time on the slide, but as you can see, we've highlighted a few examples of these global programs, from mentoring to internal career mobility, and, importantly, communities of interest and development around the skills of the future. And this, in particular, is an area that we have recognized is really important, and we're positioning to get in front of. Nurturing key talent for the future is a challenge that almost all businesses across the world are facing today. And we've thought often, and for quite a while actually, about our people focus at KBR to help mitigate this risk, but it will be an ongoing part of our future, no doubt.
So to conclude, as you've heard me say before, KBR is a values-driven organization with our people at the heart of all that we do. Our unwavering commitment to hiring the best and the brightest, rewarding and recognizing our people at all levels, and developing talent and skills for the future are all key enablers, and frankly, the true driver of shareholder value, short, medium and longer term. So now on to slide six and I'll cover our consolidated performance. Today, our presentation will actually be quite short. It's been a great start to the year with a very clean first quarter. From a safety perspective, we've started the year well, which is always pleasing, as reinvigorating the organization post the holidays is a task we take very seriously.
Now looking at financial performance, we've started the year well and ahead of pace, especially in STS and GS International. All businesses delivered at or above expectation, which was absolutely great, and the expected slowness in EUCOM in our readiness and sustainment business continued reflecting funding delays in Congress. Consolidated revenues was $1.8 billion, up 7% year-on-year, and was actually an all-time high since our transformation in 2020, when you exclude the peaks of OAW in 2021, adjusted EBITDA, outpaced expectations with a 14, 14% year-on-year increase, with margins bumping up 70 bps, so very pleasing. Cash was also a bit above expectation at $91 million, and given Q1 is typically the slowest quarter. We're very pleased with this result.
The strong performance across all key metrics certainly de-risks the following quarters and positions us very well to deliver our '24 guidance. As of Q1, we have circa 84, 84% work under contract to deliver that guide. Now on to slide seven and some key awards. For STS, activity levels remain high, opposite the energy to trilemma as we covered in the STS primer webinar recently. And we've highlighted a couple of key wins and milestones that happened in Q1. Now, these have been announced during the quarter, so I won't read them all again, but collectively, you can see that ammonia, decarbonization, energy security, and energy transition remains the key drivers. As everyone is aware, the one key change from last quarter in the government side was the government defense budget was approved, which should increase the award activity in the U.S. going forward.
We also expanded our human health and performance franchise to include U.S. Air Force Combat Command, in addition to our ongoing work with NASA and the Special Forces that you're aware of. Another nice one of note in the quarter was effectively a four-year IDIQ award to provide cyber-security services and risk management to the defense health agency. GSI, as said earlier, had an excellent quarter growing year-on-year in the mid-teens and securing the post-PFI award for the heavy equipment transport contract being the standout. This is a multi-year contract with margins aligned with expectations for GSI, so a great outcome. I'm also very pleased to announce that we have successfully completed our first moves under the HomeSafe Alliance. This is a significant milestone.
As planned, these were all in-state moves, and the volume will slowly ramp up in the coming months. Bookings in both segments were actually very, very similar at 1.2 times on a trailing 12-month basis, when you exclude the large burn on the LNG project in STS. As you'll see on the slide, STS trailing 12-month book-to-bill was 0.9 times due to that large burn, but the rest of STS's performance continues to be strong, delivering a 1.1 book-to-bill in the quarter. Historically, Q1 is a slow booking quarter, and we are pleased with the result, especially with the strength of the pipeline. So in short, a great start to the year with positive momentum. Outside of the normal course of business, this quarter was very quiet, which is very pleasing. And now I'll hand on to Mark, who will take you through the numbers in a bit more detail.
Mark?
Mark Sopp: Fantastic. Thank you, Stuart. Hello, everyone. I'll pick up on slide nine. So reiterating Stuart's remarks a little bit, the team is off to a great start for the year with ongoing growth, this quarter up 7% in revenue, and particularly strong in adjusted EBITDA growth at 14% on substantially improved margins. Core profitability has been consistent from quarter-to-quarter. We're really pleased to see that. That's a key element of our strategy, of course. We also had some profit pull-forward in STS from things planned later in the year, pumping up the consolidated adjusted EBITDA margin to about a half a percent. I'll hit that in the segments chart here in a moment. Adjusted EPS was $0.77, up 15% consistent with the EBITDA growth.
Below the line expenses were up quite a bit, primarily from a $5 million non-recurring charge for the cost to complete, our refinancing transactions in January. That headwind was offset by the lower share count, enabled by the buybacks we've been making over the past year. And vitally important, cash flow was terrific registering at $91 million, great job by the team. This demonstrates, of course, good quality earnings and our low capital intensity model also central to our strategy. I'll move on to slide 10 for the segment results. On the left, STS is continuing to drive great momentum with 15% top line and adjusted EBITDA growth. Customer attraction and retention continues to build with STS's targeted strategy to tap global demand driven by the energy trilemma.
We'll talk quite a bit about that in the IR day. We believe the trust being registered with blue chip customers around the world will offer enduring benefits to this business area and to KBR for years to come. The adjusted EBITDA margin of 22% was a little higher than expected. Here's where we had a favorable closeout in Q1, which benefited a segment margin by about two percentage points. We had planned that to spread over the full year, so that benefit shifted left. Always happy to have that happen. Over to government solutions on the right side of the chart, top line was up about 4.5%, with adjusted EBITDA up 6% on modestly higher margins. This can be attributed to mix as the stronger growth drivers in the quarter with a higher margin international and D&I business units, Defense and Intelligence.
Defense and Intel and international had double digit growth. S&S, Science and Space was at 7%. R&S contracted about 12%. And as Stuart said earlier, this is tied to activities in the European Command Theater, which have been soft given the lack of progress on funding to support Ukraine. I'm moving on to slide 11 on capital matters. The refinancing we did at the beginning of this year and covered in our previous Q4 call sets us up well for capital matters in 2024 and beyond. We have a terrific balance sheet with plenty of capital deployment options. For starters, the team generated terrific cash flow, I said earlier, of $91 million in Q1, despite that being a seasonally low quarter for cash. You recall, we upped the dividend about 10% this quarter and also completed $50 million in buybacks.
With that, we exited Q1 with a leverage ratio of 2.0, quite important as the high interest rate environment seems stickier than the market had expected. You might recall us saying that we expected the interest rate environment stays higher for longer and so far so true. Deployment priorities remain the same. We can lever up moderately for a creative M&A should opportunities present themselves. And that's in that expect buybacks in debt management. I'll finish up on slide 12. We're off to a really good start in Q1 with excellent work under contract coverage for the remaining quarters. And as such, we're reaffirming our guidance for the year on all measures. Finally, as with the rest of the folks around the table here, we're looking forward to seeing you at our IR day on May 8th, so can't wait for that to happen.
With that, I'll turn it back over to Stuart.
Stuart Bradie: Thanks, Mark, and very concise. I'll finish up on slide 13 with some key takeaways. Firstly, a strong start to the year across all key metrics, so really pleasing. Continue momentum in our key markets, with the exception of R&S, of course, due to Ukraine funding delays as we've covered a few times in this presentation. Solid bookings and backlog and what is typically a slow quarter, so a good start again in that area. And circa 84% of our work under contract, plus a strong Q1, really de-risk future quarters, and we're well positioned to deliver the full year '24 guidance. First, HomeSafe moves successfully completed. Another great milestone in the quarter. So, like Mark, I look forward to seeing you all on May 8th in New York for our Investor Day. And with that, I'll say thank you for listening, and I'll now hand back to the operator who will open the call up for questions. Thanks.
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