3rd Quarter 2020 Financial Results · 2020. 10. 29. · 3rd Quarter 2020 Financial Results October...
Transcript of 3rd Quarter 2020 Financial Results · 2020. 10. 29. · 3rd Quarter 2020 Financial Results October...
The future, designed and delivered.The future, designed and delivered.
Stuart Bradie – President and Chief Executive OfficerMark Sopp – Executive Vice President and Chief Financial Officer Alison Vasquez – Vice President, Investor Relations
3rd Quarter 2020Financial Results
October 29, 2020
©2020 KBR Inc. All Rights Reserved.
This presentation contains forward-looking statements regarding our plans, objectives, goals, strategies, future events, future financial performance and backlog information and other information that is not historical. When used in this presentation, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts” or future or conditional verbs such as “will,” “should,” “could,” or “may,” and variations of such words or similar expressions are intended to identify forward-looking statements. Suchstatements are based upon our current expectations and various assumptions, which are made in good faith, and we believe there is a reasonable basis for them. However, because forward-looking statements relate to the future, they are subject to inherent risks,uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from the forward-looking statements contained in this presentation.
These risks and uncertainties include, but are not limited to:
• the potentially global impact of uncertainties related to the 2020 Presidential and Congressional elections, including regulatory changes or changes to funding related to our lines of business that could be less favorable. Because we generate a substantial portion of our revenues from contracts with U.S. government agencies, our operating results could be adversely affected by spending caps or changes in budgetary priorities, as well as by delays in the government budget process, program starts or the award of contracts or task orders under contracts. Changes in spending authorizations and budgetary priorities may occur as a result of the shifts in spending priorities from defense-related and other programs as a result of competing demands for federal funds and thenumber and intensity of military conflicts and other factors;
• operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supplychain disruptions;
• the COVID-19 pandemic has increased the severity and duration of world health events, including volatility in the capital markets, deteriorating financial conditions or bankruptcy, and related economic repercussions resulting from severe disruption in multiple industries, which may negatively impact our clients' ability to meet their payment obligations to us in a timely manner; and
• the level of capital spending and access to capital markets by industrial companies, including significant reductions and potential additional reductions in capital expenditures in response to commodity prices and dramatically reduced demand.
Additional information about potential risk factors that could affect our business and financial results is included in our Form 10-K filed on February 24, 2020 and any subsequent Forms 10-Q and 8-K. We caution you not to place undue reliance on the forward-looking statements included in this presentation, which speak only as of the date hereof.
We disclaim any intent or obligation, except as required by law, to revise or update this information to reflect new information or future events or circumstances. This presentation contains the financial measures “EBITDA,” “Adjusted EBITDA,” “Adjusted EPS” and “Adjusted Operating Cash Flow,” which are not calculated in accordance with U.S. GAAP. A reconciliation of the non-GAAP financial measures EBITDA, Adjusted EBITDA, Adjusted EPS and Adjusted Operating Cash Flow to the most directly comparable GAAP financial measure has been provided in the Appendix to this presentation.
Forward-Looking Statements
President & Chief Executive Officer
Stuart Bradie
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KBR Sustainability Platform
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Formed an active, diverse Global Mental Health and Well-being task force to guide policies
A Focus on Mental Health and Well-Being
▪ Creating the right culture, in which employees know they’re in a supportive environment and it’s okay to talk about mental health
▪ Equipping employees with resources they need to proactively improve their mental health and well-being as they would their physical fitness, such as our Employee Assistance Program
▪ Equipping managers, so they know what their roles are and where they can refer employees should they need help
▪ Ensuring the ways we work create a positive impact, such as providing employees with flexible work arrangements, which allow for improved work-life balance
▪ Measuring our performance by collecting actionable data through methods such as employee surveys
Implemented a comprehensive strategy to support our people’s mental health
HEALTH, SAFETY & SECURITY
WHAT WE’VE DONE
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3rd Quarter Takeaways
▪ Q3 results
▪ Continued momentum and growth in high-end technical solutions – Space & Mission Solutions, Defense Systems Engineering and Technology
▪ All segments met or exceeded EBITDA margin targets
▪ Strong earnings and cash performance across the company
▪ 1.1x overall BTB1 – GS 1.3x and TS 1.3x
▪ Raising Adjusted EPS and Adjusted Cash Flow guidance
▪ Completed Centauri acquisition on Oct 1; highly strategic, upmarket, immediately accretive
▪ Strong balance sheet position with liquidity and firepower; near-term deployable capital
1 Excluding the workoff of the long-term PFIs and other adjustments
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▪ Connected▪ Collaborative▪ Team ethos▪ Market-leading technical experts▪ Unwavering operational focus▪ Accountability▪ Renowned experts▪ Experienced management
THE PEOPLE OF KBR ADVANCE OUR STRATEGY ▪ Attractive growth and
profitability outlook▪ Healthy margins; low risk▪ Low capital intensity▪ Excellent cash conversion▪ Attractive capital
deployment strategy to accelerate growth and returns
INVESTMENT THESIS▪ Well-funded end markets▪ Innovative, digitally enabled,
differentiated solutions▪ Highly technical, scientific,
classified, operational programs ▪ Protected intellectual property▪ Agile and adaptive to meet the
most complex requirements▪ Deep mission understanding▪ High-quality clients▪ Attractive program tenor;
resilient portfolio▪ Future-focused, upmarket
ATTRACTIVE, RESILIENTBUSINESS MODEL
KBR’s Strategic Model
Systems Engineering
Space & Mission Solutions
LogisticsInternational GS
Centauri
Technology
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Market Outlook | Space & Mission Solutions
MARKET DRIVERS AND OUTLOOK
▪ NASA and U.S. Space Force expanded collaboration in areas such as space domain awareness, launch support, interoperable comms networks and scientific R&D
▪ Increasing partnership and collaboration with industry to drive modernization and innovation
▪ Investment in the space industrial base as a foundation for U.S. space superiority spanning scientific, military and commercial as well as an engine for broader economic recovery
RECENT TRENDS & WINS
▪ Progressive engagement and expansion on existing NASA and DOD programs driving consistent growth
▪ Won mission-critical IT, software and systems engineering for the Volpe Center for all modes of transportation (FAA, National Highway Traffic Safety Administration and others)
▪ Won recompete to provide weather data from surface-based, mobile and aircraft-based weather observation platforms for NOAA
SPACE & MISSION SOLUTIONS
13%REVENUE GROWTH
(v Q3 2019)
$2.3BBACKLOG &
OPTIONS
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Market Outlook | Defense Systems Engineering
MARKET DRIVERS AND OUTLOOK
▪ Shifting threat environment and national security and defense priorities opposite near peer threats
▪ Strong support for investment to sustain and advance critical national security interests across military space, intelligence, cyber and missile defense
▪ Investment in next-gen, emerging technology (e.g., AI, autonomous systems, cyber warfare, trusted microelectronics, directed energy and hypersonics)
RECENT TRENDS & WINS
▪ Achieved 2.4x overall book-to-bill in the quarter; increasing average contract value and tenor
▪ Won new R&D work for Air Force Research Lab on novel semiconductor materials for next-gen electronic devices
▪ Won new systems engineering, integration and sustainment work for counter unmanned air systems for Naval Air Warfare Center Aircraft Division
▪ Won R&D work for cutting-edge tactical rocket and missile systems, ancillary launchers and test sets
DEFENSE SYSTEMS ENGINEERING
10%REVENUE GROWTH
(v Q3 2019)
$2.1BBACKLOG &
OPTIONS
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Market Outlook | Logistics
MARKET DRIVERS AND OUTLOOK
▪ Shifting threat environment and national security and defense priorities opposite near peer threats
▪ Expanding O&M funded sustaining operations while supporting contingency as needed; reducing proportional OCO mix
▪ Drive toward digitalization, modernization, automation and energy efficiency
▪ New agile supply chains emerging with global reset driven by COVID-19 and China decoupling
RECENT TRENDS & WINS
▪ Won a contract to upgrade and modernize automated fuel handling equipment systems for DLA
▪ Won a contract to provide sustaining base operational services at a strategic air base in Saudi Arabia
▪ Won numerous contracts to support domestic needs and priorities under Northcom
▪ Won a significant sustaining base operations contract for the U.S. Air Force internationally
READINESS & SUSTAINMENT
1.4XYTD BOOK-TO-BILL
$2.2BBACKLOG &
OPTIONS
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Market Outlook | International Defense & Gov’t
MARKET DRIVERS AND OUTLOOK
▪ U.K. MOD integrated review of security, defense, development and foreign policy in progress
▪ Drive toward greater international engagement and cross-domain integration of military capability (sea, land, air and joint)
▪ International commitment to advance defense priorities in critical and emerging areas and modernize aging platforms
▪ Defense industrial base recognized as a tool to advance broad economic recovery
▪ Funding constraints in UK; mitigated by strong backlog and geographic diversification
RECENT TRENDS & WINS
▪ Won a contract to provide software development, systems engineering, data management, security and architecture support for the Australian Army’s land range safety management system
▪ Won a contract to provide integrated systems engineering, training and logistics support for the New Zealand Defence Force
▪ Won extension of core leadership, program management, acquisition and sustainment services for the Australian DOD
▪ Continued strong performance on Aspire
INTERNATIONAL70%
YTD REVENUEGROWTH IN GS
AUSTRALIA
$7.3BBACKLOG
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Market Outlook | Technology & Energy
MARKET DRIVERS AND OUTLOOK
▪ Growing number of countries and companies targeting reduction in carbon footprint driving demand for energy transition advisory and sustainable technology
▪ Global population growth and expanding middle class increase demand for fertilizers for food production, non-single-use plastics for commercial development and other specialty chemicals
▪ Investment to improve product diversification, reduce emissions and improve cost efficiency
▪ Aging industrial asset base driving demand for smarter maintenance
RECENT TRENDS & WINS
▪ Entered into strategic alliance with Johnson Matthey to license innovative ammonia-methanol co-production process technology
▪ Awarded two contracts to provide process technology licensing and process design packages for what will be the largest single-train methanol-to-olefins plant in the world
▪ Extended contract to provide reliability-based maintenance solutions to a major chemical client
TECHNOLOGYSOLUTIONS
1.3XHERITAGE TS
YTD BOOK-TO-BILL
$1.9BBACKLOG
(TS AND ES)
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Market Outlook | In Summary
Lead
Positioning & Pursuit
Proposal & Negotiation
$54B
$30B
$19B
$103 Billion
KBR Pursuit Pipeline
10+PURSUITS > $1B
150+PURSUITS > $100M
As of September 30, 2020; award announcements expected through Sept 2024; excludes Centauri
▪ Pursuit pipeline well-balanced across the business
▪ Robust pipeline and healthy book-to-bill increase visibility of future growth and resilience
▪ Low recompete risk in 2020 and 2021
EVP & Chief Financial Officer
Mark Sopp
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1See Appendix for reconciliation of Adjusted EBITDA , Adjusted EPS and Adjusted Operating Cash Flow2 3Q19 is presented pro forma to exclude ~$1.4B of backlog as of September 30, 2019 associated with ES de-bookings announced in 2Q20
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3Q 2020 | Financial Snapshot
REVENUE ADJUSTED EBITDA1ADJUSTED EBITDA MARGIN1
ADJUSTED EPS1 ADJ. OPERATING CASH FLOW1 BACKLOG2
OPTIONS
BACKLOG
$ in millions, except EPS and Backlog
$1,425 $1,379
3Q19 3Q20
$131 $125
3Q19 3Q20
9% 9%
3Q19 3Q20
$0.45 $0.44
3Q19 3Q20
$118
$90
3Q19 3Q20
$13B $13B
$3B $3B
3Q19 3Q20
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Q3 2020 | Segment Results
▪ 13% growth in Space & Mission Soln▪ 10% growth in Defense Sys Engineering▪ Logistics impacted by Middle East
reductions, partially offset with uptick in Northcom work
▪ Excellent cash generation and working capital improvement
▪ Increased mix of license revenue in 2020 driving excellent profitability; 2019 includes higher equipment revenue
▪ Strong execution and absorption; proactive cost measures
▪ Net negative working capital
▪ Revenue and EBITDA as expected
▪ Cost efficiency initiatives progressing on plan
Note: See Appendix for reconciliation of Adjusted EBITDA
978 980 106 106
3Q19 3Q20 3Q19 3Q20
Government Solutions
10.8% 10.8%
Revenue Adj. EBITDA
96
71
24 25
3Q19 3Q20 3Q19 3Q20
Technology Solutions
25% 35%
Revenue Adj. EBITDA
351 327
13 12
3Q19 3Q20 3Q19 3Q20
Energy Solutions
4% 4%
Adj. EBITDARevenue
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Acquisition of Centauri
• Transaction closed October 1, 2020• Cash consideration of $827
million funded through a combination of cash on hand, $250 million of high-yield bonds and $260 million revolver borrowings
STRATEGIC, ACCRETIVE ACQUISITION CLOSE
• Immediately accretive; reflected in increased FY 2020 Adjusted EPS guidance
• Incremental interest expense is included in adjusted EPS guidance
• Non-cash intangible amortization is excluded
FY 2020 GUIDANCE ASSUMPTIONS
• Accelerates KBR’s leadership position in space superiority
• At-scale presence in intelligence and military space immediately expands KBR’s addressable market in areas critical in National Defense Strategy
ACQUISITION THESIS
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CAPITALDEPLOYMENT PRIORITIESFund Organic Growth
Maintain Attractive Dividend
Maintain Responsible Leverage
Strategic M&A or Share Repurchase
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Capital Deployment and Liquidity Profile
HEALTHY LIQUIDITY PROFILE
Attractive Dividend
▪ $0.10 per share quarterly dividend▪ 25% increase from 2019
Net Leverage Target
▪ Target net leverage set at 2.5x-3.0x▪ Reflects shift in portfolio toward
sustaining, differentiated, cash generative portfolio
NETLEVERAGE
TARGET
2.5x to 3.0xTARGET RANGE
NETLEVERAGE
2.5xPOST CENTAURI
Near-Term Deployable Capital
▪ Healthy balance sheet capacity, postCentauri close
▪ Attractive free cash flow with low capital intensity business model
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Raising FY 2020 Guidance
FY 2020 Guidance (updated)
Adjusted EPS1 $1.60 - $1.80
Effective tax rate 25% - 27%
Adjusted operating cash flow1 $270M - $290M
(1) See Appendix for reconciliation of Adjusted EPS and Adjusted Operating Cash Flow
IN CONCLUSION
▪ Momentum in high-end differentiated areas
▪ Strong Q3 earnings; raised Adj. EPS guide
▪ Stellar cash; raised Adj. operating cash flow guide
▪ Healthy pipeline and BTB build confidence in the future
▪ Completed strategic, accretive Centauri acquisition
▪ Strong balance sheet and capital deployment capacity
AppendicesDOING THE RIGHT THING FOR THE PLANET, OUR PEOPLE AND OUR COMMUNITIES WHILE PURSUING BUSINESS GROWTH
Appendices
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Non-GAAP Reconciliations: Adjusted EPS & Adjusted Cash Flow
Adjusted EPS ReconciliationQuarter Ending
3Q19 3Q20
EPS (Diluted) $0.39 $0.36
Add Back:
Ichthys interest and commercial dispute cost 0.02 0.03
Non-cash imputed interest on conversion option 0.01 0.01
Amortization related to acquisitions 0.02 0.02
Legacy Legal Fees 0.01 0.01
Acquisition and integration related cost 0.00 0.01
Adjusted EPS $0.45 $0.44
Adjusted Operating Cash Flow Reconciliation
3Q19 3Q20
Cash flows provided by operating activities $118 $95
Adjustments:
Add back: Major project advance work-off 0 14
Remove: CARES act temporary tax payment relief 0 (19)
Adjusted Cash flows provided by operating activities $118 $90
Adjusted EPS Guidance
2020 Guidance
EPS (Diluted) $(0.58) $(0.38)
Add Back:
Restructuring and impairment charges 1.86
Non-cash gain on legal entity rationalization1 (0.04)
Ichthys interest and commercial dispute cost 0.13
Non-cash imputed interest on conversion option2 0.06
Amortization related to acquisitions 0.10
Acquisition and integration cost 0.03
Legacy Legal Fees 0.04
Adjusted EPS $1.60 $1.80
Adjusted Operating Cash Flow Guidance
Lower Upper
Cash flows provided by operating activities $375 $395
Adjustments:
Add back: Major project advance work-off 75
Remove: CARES act temporary tax payment relief (60)
Remove: Receivable monetization related to acquisition (120)
Adjusted Cash flows provided by operating activities $270 $2901Conversion hedge will be calculated and adjusted quarterly based on KBR trading price; 2Gain (loss) on close-out of legal entities will vary based on actual entities closed during the year
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EBITDA is defined as earnings before interest income / expense, income taxes, other non-operating income / expense (including FX) and depreciation & amortization.
Non-GAAP Reconciliation: Consolidated & Adjusted EBITDA
Adjusted EBITDA ReconciliationDec 31, 2018 Mar 31, 2019 Jun 30, 2019 Sep 30, 2019 Dec 31, 2019 Mar 31, 2020 Jun 30, 2020 Sep 30, 2020
Net Income (Loss) Attributable to KBR $47 $40 $48 $56 $58 ($104) ($39) $52
Add Back:
Interest Expense $23 $25 $26 $25 $23 $23 $19 $18
Provision (benefit) for Income Taxes $12 $16 $18 $24 $1 ($1) $6 $19
Other non-operating (income) expense $2 ($5) ($2) ($3) $5 ($7) $2 $4
Depreciation & Amortization $16 $25 $23 $28 $28 $27 $21 $26
Consolidated EBITDA $100 $101 $113 $130 $115 ($62) $9 $119
Add Back:
Restructuring and impairment charge, net of NCI $0 $0 $0 $0 $0 $173 $96 $1
Non-cash gain on legal entity rationalization $0 $0 $0 $0 $0 ($8) $1 $0
Ichthys commercial dispute costs $0 $0 $0 $0 $0 $7 ($2) $1
Legacy Legal Fees $2 $4 $3 $1 $2 $2 $2 $2
Acquisition & integration related expenses $2 $1 $1 $0 $0 $0 $0 $2
Aspire (gain) loss on consolidation $5 $0 $0 $0 $0 $0 $0 $0
Adjusted EBITDA $109 $106 $117 $131 $117 $112 $106 $125
Quarter Ending
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EBITDA is defined as earnings before interest income / expense, income taxes, other non-operating income / expense (including FX) and depreciation & amortization.
Non-GAAP Reconciliation: Segment EBITDA and Segment Adjusted EBITDA
Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20
Net Income Attributable To Government Solutions $ 72 $ 69 $ 91 $ 87 $ 88 $ 92 $ 91 $ 94
Add Back:
Interest expense $ 1 $ 1 $ 1 $ 1 $ 0 $ 0 $ 0 $ 0
Provision for income taxes $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other non-operating (income) expense ($0) $ 0 ($1) $ 0 ($1) $ 0 $ 0 ($1)
Depreciation & amortization $ 10 $ 15 $ 13 $ 17 $ 13 $ 12 $ 10 $ 11
EBITDA - GS $ 83 $ 85 $ 104 $ 105 $ 100 $ 104 $ 101 $ 104
Add Back:
Legacy Legal Fees $ 2 $ 4 $ 3 $ 1 $ 2 $ 2 $ 2 $ 2
Aspire (gain) loss on consolidation $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Adjusted EBITDA - GS $ 85 $ 89 $ 107 $ 106 $ 102 $ 106 $ 103 $ 106
Net Income Attributable To Technology Solutions $ 23 $ 20 $ 18 $ 24 $ 26 $ 22 $ 18 $ 22
Add Back:
Interest expense $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Provision for income taxes $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other non-operating (income) expense ($0) ($0) ($0) ($1) $ 1 $ 0 $ 0 $ 1
Depreciation & amortization $ 1 $ 2 $ 1 $ 1 $ 2 $ 1 $ 1 $ 2
EBITDA - TS $ 24 $ 22 $ 19 $ 24 $ 29 $ 23 $ 19 $ 25
Net Income (Loss) Attributable To Energy Solutions $ 30 $ 24 $ 16 $ 10 $ 6 ($104) ($90) $ 3
Add Back:
Interest expense $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Provision for income taxes $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Other non-operating (income) expense ($1) ($1) ($0) ($1) $ 1 $ 1 $ 1 $ 1
Depreciation & amortization $ 2 $ 5 $ 5 $ 5 $ 6 $ 6 $ 6 $ 6
EBITDA - ES $ 31 $ 28 $ 21 $ 13 $ 13 ($97) ($83) $ 10
Add Back:
Ichthys interest and commercial dispute costs $ 0 $ 0 $ 0 $ 0 $ 0 $ 7 ($2) $ 1
Restructuring and impairment charge, net of NCI $ 0 $ 0 $ 0 $ 0 $ 0 $ 109 $ 88 $ 1
Non-cash gain on legal entity rationalization $ 0 $ 0 $ 0 $ 0 $ 0 ($8) $ 1 $ 0
Adjusted EBITDA - ES $ 31 $ 28 $ 21 $ 13 $ 13 $ 11 $ 4 $ 12
Quarter Ending
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Operating Income by Segment
($ in millions, except EPS) GS TS ES NSB Other Total KBR
Revenues $ 980 $ 71 $ 327 $ 1 $ 0 $ 1,379
Gross Profit $ 129 $ 30 $ 15 ($2) $ 0 $ 172
Equity in Earnings 9 - 4 - - 13
SG&A (43) (6) (15) - (25) (89)
Acquisition & Integration - - - - (2) (2)
Restructuring and Impairments - - (1) - - (1)
Operating Income (Loss) $ 95 $ 24 $ 3 ($2) ($27) $ 93
Interest Expense - - - - (18) (18)
Other Non-Operating Income (Loss) 1 (1) (1) - (3) (4)
Income (loss) Before Taxes and NCI $ 96 $ 23 $ 2 ($2) ($48) $ 71
($ in millions, except EPS) GS TS ES NSB Other Total KBR
Revenues $ 978 $ 96 $ 351 $ 0 $ 0 $ 1,425
Gross Profit $ 110 $ 30 $ 21 $ 7 $ 0 $ 168
Equity in Earnings 7 - 2 - - 9
SG&A (28) (7) (14) - (25) (74)
Gain on Disposition of Assets - - - - 1 1
Operating Income (Loss) $ 89 $ 23 $ 9 $ 7 ($24) $ 104
Interest Expense (1) - - - (24) (25)
Other Non-Operating Income - 1 2 - - 3
Income (loss) Before Taxes and NCI $ 88 $ 24 $ 11 $ 7 ($48) $ 82
3Q20
3Q19